---

Queen’s Speech

My Lords, this has been a very good debate. The speeches have covered a breadth of topics with much insight. I have been invited to Blackfriars Bridge Road by the noble Lord, Lord James of Blackheath; and the noble Lord, Lord Jones of Cheltenham, has suggested that I go walkabout in the British Overseas Territories. Subject to Lloyds Bank being in agreement, I suggest to the noble Lord, Lord James, that we go this Friday morning. On the subject of the overseas territories, I shall pass on the message to my colleagues in the FCO, but I would remind the noble Lord, Lord Jones, that we have recently published the Foot report, which includes a rigorous review of the sustainability of the economies of the Crown dependencies and overseas territories. I will touch on as many of the points that were raised as I can, but I beg lenience in advance of inevitable oversights. As the noble Lord, Lord Addington, said, I need peripheral vision to cover the full range of subjects that have been raised. I start by congratulating the noble Lords, Lord Martin of Springburn and Lord Sugar, on their excellent maiden speeches, about which I will say more in a moment. Two issues have been very much in the news today. First, I will say a few words about the emergency liquidity assistance and the Chancellor’s Statement earlier today in the other place. Then I will touch on the subject of bank charges, raised by the noble Baroness, Lady Noakes. As the Chancellor set out, one function of central banks is to provide emergency liquidity to banks when it is necessary to do so. Lender of last resort facilities have been a feature of the banking system for centuries. It is therefore essential that the Bank of England has the power to lend to individual banks facing temporary liquidity problems. The Bank must be able to do so effectively, and on occasion this will inevitably mean that it has to do so covertly. The noble Lord, Lord Hunt, reminded me that I used that term as he was eating his cornflakes this morning. Disclosure of individual operations could lead to a loss of confidence and exacerbate short-term liquidity problems. The governor was clear in his advice to the Chancellor that the support provided at the end of last year should be covert. The absence of a covert mechanism was one problem that we experienced in September 2007 when we addressed the issues at Northern Rock. The problem was recognised by the House and by the Treasury Select Committee in its report on Northern Rock. Early in 2008, we consulted on proposals to facilitate covert operations, and following the Banking Act 2009 we brought to an end the automatic disclosure of liquidity assistance by the Bank of England. This enabled the Bank to decide the most appropriate way to make disclosures to the market. The FSA, too, has said that there must be good reasons for delaying disclosure of emergency liquidity operations. No one should underestimate the gravity of the situation that we faced 12 months ago. I have said that repeatedly to this House and publicly. We came very, very close to a complete collapse of the banking system, and I think that the facts as disclosed yesterday by the governor give further evidence that what I have been saying to the House has been a correct depiction of the situation. Protecting retail depositors and maintaining financial stability was essential, and we achieved those goals. In his Statement to the other place on 6 October 2008, the Chancellor said that the governor had made it clear that, ""in these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity".—[Official Report, Commons, 6/10/08, col. 21.]" Yesterday, the Governor of the Bank of England told the Treasury Select Committee that the Bank had extended such emergency liquidity assistance to RBS and HBOS in the autumn of 2008. It is the policy of the Bank that such assistance should be disclosed once the Bank considers that the need for confidentiality has ceased. It is quite monstrous for representatives of the party opposite to suggest that in some way the Bank of England failed in producing an accurate and complete set of audited accounts to share with the nation. The accounts produced by the Bank of England correctly reflected the consequences of the support that it had provided, and I think it was rather poor form for Mr Fallon to suggest that there was something in some way wrong with the Bank’s accounts. Now that RBS has signed up to the asset protection scheme and Lloyds Banking Group has embarked on its alternative strategy for capital-raising, the governor’s judgment is that there is no reason for the assistance provided to remain secret. The Chancellor and I agree with this judgment. The support was provided with good security—well over 100 per cent additional security. The funds were repaid at the turn of the year and a penal rate of interest was charged by the Bank of England. There has been no cost to the taxpayer; indeed, the taxpayer has secured a gain from this essential action. It is important that the Bank has the opportunity to provide emergency liquidity assistance when it judges it necessary—a power conferred on it by Parliament. The noble Lord, Lord Hunt, referred to the fact that this was covert. The last time that the Bank of England used covert support operations was in 1991, when Norman Lamont, now the noble Lord, Lord Lamont, was Chancellor of the Exchequer. That was not reported until 1994. In case the noble Lord, Lord Oakeshott, was intending to make a similar point, I checked when special liquidity support was last provided by the Bank of England when we had a Liberal Chancellor of the Exchequer. That took me right back to Asquith in 1911, but I do not believe that the Bank of England ever publicly disclosed it. Therefore, we have now moved on to a more transparent and accountable system, but no doubt the Liberal Democrat Party, if ever elected, would support additional transparency. I share the admiration expressed by my noble friend Lord Eatwell for the governor and the chairman of the FSA. The governor, in particular, is a man of exceptional intellect and integrity, and we are very fortunate to have him in place. The second issue in the news today is the Supreme Court’s decision on bank charges. Consumers will be extremely disappointed with this outcome. It is clear that in the past banks did not think enough about their customers, and that needs to change in the future. We have made it clear that banks need to agree a fairer and more transparent system of charges for the future, and this is something that the OFT is discussing with them. We would prefer to see a voluntary agreement but we do not rule out further measures, possibly including legislation if a voluntary approach does not deliver the kind of behavioural changes that are required. We are looking into this in tandem with the ongoing discussions between the OFT and the banks. In a competitive market, banks need to respond to their customers or risk losing their business. We have made it easier for people to move their accounts if they are not happy with their bank. My noble friend Lord Sawyer spoke eloquently about the attractions of mutuals and the need for banks to engage more openly and constructively with their customers. The new Financial Services Bill, on which I shall say more in a minute, will provide greater power and protection for customers in the future. Let me set out the economic context of the debate. I listened with great interest to the opening speech of the noble Lord, Lord Hunt of Wirral. On economics, I heard no analysis; I heard no policies. But I heard what the noble Lord, Lord Razzall, described, as a rumble. In eurospeak, that is nul points for constructive ideas about the economy. I assumed that the noble Lord, Lord Hunt, was probably waiting for the noble Baroness, Lady Noakes, and was saving the better points for his noble friend. Regrettably there were no constructive proposals on the economy and no real insights into Conservative thinking. Once again, nul points for the Conservatives on having anything useful to say about the economy. The global economy is forecast to shrink by 1.25 per cent in 2009—the first time it has shrunk in more than 60 years. Every country is being affected by this global recession and every country has been hit in different ways. The recession was triggered by a financial crisis that was global in origin and unprecedented in scale. There are many views on the cause of the financial crisis. I believe that at its heart it was a failure of governance and an abdication by many in the financial sector of their fiduciary and moral obligations to shareholders, employees and society. There was also a failure by institutional shareholders to protect the interests of their clients by acting as engaged owners, a point made by the noble Lord, Lord Plant, in his insightful comments. The noble Lord, Lord Oakeshott, also mentioned that, and reminded us that the Government—the taxpayer—is a significant shareholder in the Royal Bank of Scotland and in Lloyds Banking Group. I refer to the comments of the previous chairman of UKFI, Mr Glen Moreno, who described the governance of the UKFI as "fidelity with nuclear weapons". UKFI will be an exemplar of corporate governance and will, I hope, achieve the very high standards that the noble Lord, Lord Smith of Clifton, would expect from an informed and engaged shareholder. In Her Majesty’s gracious Speech, we brought forward legislation to enhance the governance of the financial sector and to control the system of rewards. The noble Baroness, Lady Noakes, assured me that the Bill would receive meticulous scrutiny. That, I expect, is because the Conservative Front Bench is extremely good at meticulous scrutiny, but not quite as good at seeing the big picture of financial architecture and economic challenge. I know that the noble Baroness specialises in meticulous scrutiny. The Financial Services Bill will ensure that the financial system that emerges from the crisis is not only rebuilt on a stronger and sounder footing but is fairer and works for consumers. The FSA will be given greater powers to consider systemic risk when supervising individual firms. The FSA’s powers to implement internationally agreed standards on remuneration practice will be strengthened to ensure that bonuses are awarded for long-term performance and calibrated inversely to risk. The Bill will place a duty on the FSA to require firms to establish living wills or recovery and resolution plans, as referred to in the legislation. The question of how best to strengthen financial regulation to prevent future crises is complex and there is clearly a wide range of views on the subject both in this Chamber and outside. The Government lead the international debate on issues of resolution and strengthening the financial system. I note here the speech of my right honourable friend the Prime Minister to the G20 Finance Ministers recently in St Andrews when he spoke of the need to ensure that banks internalise and self-insure for risk in the future. That was also referred to by the noble Baroness, Lady Valentine. The Prime Minister in that speech also spoke about transaction taxes—referred to by my noble friend Lord Haskel—as being another measure to ensure that society no longer has to underwrite the banking system. On the question of the institutional framework, the Government do not believe that altering the internal boundaries, as proposed by the Opposition Front Bench, will of itself solve anything at all. Rather, strength and regulation are needed, as well as enhanced co-operation between the authorities. The FSA’s new powers and the council for financial stability will do just that. We are taking action to address the problem of systemically important firms. The measures in the Bill to require firms to produce recovery and resolution plans will address the issue of systemic risk posed by firms by reducing the probability of firm failure and the impact of such failure, should it occur. Firms will no longer be too complex, too interconnected or too big to fail. Banks may have to institute a measure of restructuring to facilitate the development of acceptable recovery plans. The noble Lord, Lord Razzall, referred to recent comments in the Sunday Telegraph from Mr Varley of Barclays Bank in reference to proprietary trading. I think that that was in itself a thinking process in preparation for having to provide for living wills, the de-risking of the bank and, possibly, a more significant strategic restructuring. The noble Lords, Lord Wakeham and Lord Newby, both spoke about the issue of casino banks and Glass-Steagall. We believe that many of the objectives that those who propose those structures have in mind can be achieved by the combination of stronger capital, more liquidity and the need for recovery and resolution plans. I agree with the noble Lord, Lord Newby, that many in banking still have tin ears. They do not understand the reality of what they have done or how annoyed people are by their excesses and their continued sense of entitlement to extraordinary reward. My noble friend Lord Haskel referred to the need to rebuild trust. The report from Sir David Walker tomorrow will, I think, provide some valuable steps forward to strengthen governance and rebuild trust. My noble friend Lord Haskel also referred to the activities of investment banks. He referred to the term "market colour", high-frequency trading and the high profitability of investment banks. There are questions here about the extraordinarily high rent that investment banks appear to be taking from capital providers and capital users. It defies rational analysis that they should be as profitable as they are unless there is some advantage there, which may lie in the area of market colour or elsewhere, which is being exploited. I am alert to and constantly probing that. The noble Baroness, Lady O’Cathain, asked whether anyone had suffered being banned from acting as a director. The Prime Minister, in his speech at the Labour Party conference in Brighton—a truly wonderful speech—said that he was absolutely committed to ensure that people who had been up to mischief and wrongdoing should not be able to serve as directors of public companies. The noble Baroness will no doubt be aware that the Lloyds Bank circular issued to its shareholders recently referred to the fact that the FSA is carrying out an investigation into certain issues relating to HBOS, and Bradford & Bingley has also announced that investigations are continuing. I fear that we will have to watch for and await announcements. I say the same in response to question on a similar subject from the noble Lord, Lord Smith of Clifton. The Government took rapid and decisive action to combat the worst effects of the global financial crisis. We provided real help to people and businesses by putting a £20 billion stimulus into the economy. The noble Lord, Lord Razzall, referred to non-standard monetary policies and quantitative easing. He referred to standing outside Parliament waiting for the helicopters to shower pound notes on him. I fear that in front of Parliament is not the right place to stand. He needs to stand in those constituencies on which the noble Lord, Lord Ashcroft, is pouring huge amounts of money from his offshore helicopter—on those constituencies where he thinks that it is possible to buy your way to electoral success.