26 Nov 2013 : Column 1291

House of Lords

Tuesday, 26 November 2013.

2.30 pm

Prayers—read by the Lord Bishop of Wakefield.

Food: Food Banks


2.37 pm

Asked by Lord Haskel

To ask Her Majesty’s Government what is their response to the request by the Executive Chairman of the Trussell Trust for an inquiry into the causes of food poverty and the incidence of the usage of food banks.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, the Government recognise the good work of organisations that redistribute surplus food to those who might otherwise struggle to access nutritional meals. However, the root causes of household food insecurity are varied and complex. We are not proposing to record the number of food banks or the potential number of people using them or other types of food aid. To do so would place unnecessary burdens on volunteers trying to help their communities.

Lord Haskel (Lab): My Lords, yesterday I visited the Trussell food bank in Richmond—the third wealthiest place in the country. There the food bank distributes a tonne of food a month, up 60% on the year, to people referred to it from 40 agencies, many of them associated with the Minister’s department. Is the Minister content to leave it to charity to feed thousands of people who fall through the cracks of his department? Does the Minister agree that this food poverty must not—cannot—go on? How will the Government bring it to an end?

Lord De Mauley: My Lords, the gist of the noble Lord’s question was whether the Government think that it is okay to rely on the voluntary sector. The answer is no. The Government recognise the good work of charitable organisations that redistribute surplus food, but the Government also have a role. It is not the Government’s role to set prices, but we work to promote open and competitive markets that help to offer the best prices to consumers. Through Healthy Start and other initiatives, we provide a nutritional safety net in a way that encourages healthy eating among more than 500,000 pregnant women and children under four years old in very low-income and disadvantaged families throughout the UK.

Lord Martin of Springburn (CB): My Lords, is it not the case that we are subjecting people—decent men and women—to great indignities by having them queue up for food at the food banks, and that we should find some other way of helping families in need?

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Lord De Mauley: I agree with the noble Lord. Of course we appreciate that some of the poorest people are struggling. The best way to help people out of poverty is to help them into work. The latest labour market statistics show employment up, unemployment down and the number of workless households down. We operate a number of government initiatives aimed at helping families with food: Healthy Start, Change4Life and the school fruit and vegetable scheme; and we are extending free school meals. In addition, there are a number of other measures designed to help households in the wider context: the personal tax allowance up £235 from April 2013, 2.4 million people taken out of tax altogether, and fuel duty increases cancelled, to name a few.

Lord Soley (Lab): Do the Government not understand that while the international financial crisis has hit people on low incomes in many countries, in this country we have an additional problem that the Government are not addressing, which is that utilities—gas, electricity and water—are hitting people on low incomes so hard that they are choosing between the utilities and food? That is what the Government need to address.

Lord De Mauley: The noble Lord makes a fair point about energy prices. Although we cannot control volatile world energy prices, we can still help people get their bills down. The best way to keep everyone’s bills down is to help people save energy, ensure fair tariffs and encourage competition, and that is exactly what we are doing.

Baroness Parminter (LD): My Lords, usage of food banks is rising right across Europe, including in the relatively wealthy countries of the United Kingdom, France and Germany. In light of this, what discussions have the Government had with the European Commission in advance of its planned initiative on sustainable food?

Lord De Mauley: My noble friend asks an important question. We have been working closely with the Commission and other member states with regard to the communication on sustainable food. We met members of the food and drink sector before responding to the Commission’s consultation in October. We have also convened a meeting between interested parties and the Commission. It is a very complex matter but we have ensured that the Commission is aware of the many sustainability and resource-efficiency initiatives undertaken by the UK food industry in recent years.

Lord Davies of Coity (Lab): My Lords, does the Minister remember that a very long time ago a man by the name of Galbraith coined the phrase “private affluence and public squalor”? In view of the increase in poverty and the growth of food banks, does the Minister believe that this country is heading for the same situation?

Lord De Mauley: No, my Lords, and I think I have somewhat laboured the point as to the policy initiatives that we are following.

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Lord Lucas (Con): Does my noble friend not take comfort from the fact that there are poor people in Richmond, that we do not live in a segregated society, and that we are not wasting all the food that is in danger of going out of date but are finding a good place for it to go? What would the party opposite do—abolish food banks and send the food to landfill?

Lord De Mauley: My Lords, my noble friend makes a fair point. I am not going to accept his invitation to suggest what the party opposite might or might not do.

Lord McKenzie of Luton (Lab): My Lords, is it not the case that the increased use of food banks is at least in part attributable to the fact that we have a harsher benefits system, a harsher sanctions system and a harsher hardship system? In the year to June, some 860,000 JSA claimants were sanctioned; under the new three-year sanction, which we were told would apply only to a handful of people, more than 700 people were sanctioned. How healthily can you eat on £42 a week?

Lord De Mauley: My Lords, I think it is right to expect claimants who are able to look for or prepare for work to do so. Claimants will only ever be required to meet reasonable requirements, taking into account their circumstances and capability. A sanction will never be imposed if a claimant has good reason for failing to meet requirements, and sanctions can be reconsidered or appealed. If claimants demonstrate that they cannot buy essential items, including food, as a result of their sanction, they can claim a hardship payment. This means that no claimant should ever have to go without essentials as a result of their sanction.

Lord Kennedy of Southwark (Lab): My Lords, this year the Government commissioned research on the landscape of food provision. They have had the review since June; they have been reviewing it for longer than it took to write it. Is the reason why they have kept the report and have not published it yet the fact that it shows that the recent increase in food aid provision is due to their own disastrous policies? If I am wrong, publish the report.

Lord De Mauley: My Lords, the noble Lord is right that we have commissioned research to assess publicly available evidence on food aid provision in the UK, including food banks. This work will be made available in due course. All government-funded research reports are required to go through an appropriate review and quality assurance process before publication. The report will be published once this is complete.

Tanzania: North Mara Mine


2.46 pm

Asked by The Lord Bishop of Wakefield

To ask Her Majesty’s Government what representations they have made to the government of Tanzania regarding allegations of human rights violations at the North Mara Mine.

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The Lord Bishop of Wakefield: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as the joint leader of the Wakefield-Tanzania Diocesan Link.

Lord Ahmad of Wimbledon (Con): My Lords, the UK’s high commissioner to Tanzania visited the North Mara mine in March 2013 to raise concerns directly about the alleged human rights violations with African Barrick Gold, the mine owner, and also discussed a range of issues with the local authorities. We are, of course, working closely with the Tanzanian Government on improving respect for human rights and also encouraging them to sign up to the voluntary principles on security and human rights in the extractive sector.

The Lord Bishop of Wakefield: My Lords, I thank the Minister for that response. Would he not agree, however, that the human rights abuse at the North Mara mine, which I have experienced directly and recently, ought to be solved by a proper community relations effort in the region, and would be best resolved by a conciliar process, taking into account community leaders, Barrick Gold and the local police force? What further steps might the Foreign and Commonwealth Office take, please, to move that forward?

Lord Ahmad of Wimbledon: I agree with the right reverend Prelate, and ABG—Barrick Gold—has taken various initiatives. Indeed, our high commissioner, on visiting the area, found that up to $12 million-worth has been spent on corporate social responsibility, including healthcare centres, schools and water boreholes. There is more to be done. For example, she pointed out that although there is a healthcare centre, it is not properly manned with healthcare professionals. We have taken this up with the local authorities, working with our EU partners on the ground.

Baroness Kinnock of Holyhead (Lab): My Lords, is the Minister aware that African Barrick Gold, which is a British company, has continued to rely on the Tanzanian police to provide security at the North Mara goldmine, despite the shocking number of gunshot deaths and injuries to local people? Will the Government put pressure on African Barrick Gold and insist that it respect the human rights of desperately poor and vulnerable people?

Lord Ahmad of Wimbledon: My Lords, it is my understanding that Barrick Gold is actually a Canadian company, although it is listed on the London Stock Exchange. As for the other matter that the noble Baroness raises, I agree with her: of course it is important for all companies, including Barrick Gold, to work with the local people on the ground to ensure that any human rights violations are addressed. Secondly, I notice that the main purpose of people being there with Barrick Gold is employment, to ensure that local people get the opportunity to gain full employment.

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Lord Dholakia (LD): My Lords, there is a lawsuit by the local residents against the company alleging that it is responsible for injuries to local villagers. While we await the outcome in the court, would it be appropriate to ask the Tanzanian Government about the role of the police in the death of at least six villagers? Should we not encourage them to investigate this matter, as a human rights violation in those mining communities? I declare an interest, as one born in Tanzania.

Lord Ahmad of Wimbledon: My noble friend, of course, knows the country much better than I, and I take on board his valid points. My understanding is indeed that the police authorities and the local authorities are looking at the incident and investigating it. I assure my noble friend that my honourable friend Mark Simmonds, the Minister for Africa, has raised the issue on three separate occasions this year when meeting officials from the Government.

Lord Triesman (Lab): My Lords, the Minister is right—it is a Canadian company—but it is listed in London and, potentially, we have some responsibilities. Quite aside from the North Mara mine, there are many other reports of human rights issues involving this company—at Marinduque in the Philippines and in Papua New Guinea, where rape victims, allegedly, of the guards employed by the company, have been offered a minimal remedy provided that they give up all legal proceedings. In New Zealand, superannuation funds have now excluded investment in this company. Will the Minister give an undertaking on behalf of the FCO that in the next FCO human rights annual report the dealings of that company will be reviewed?

Lord Ahmad of Wimbledon: I shall certainly take back the views expressed during questions to my noble friend and, indeed, to my right honourable friend the Foreign Secretary. Let me assure the House that ABG is signed up to the voluntary principles on security and human rights. That is a point that we have again reinforced in discussions and representations made.

Lord Avebury (LD): My Lords, given that this company is listed on the Stock Exchange, what are the responsibilities of the UK Listing Authority in respect of a member company accused of serious criminal offences? Could my noble friend also say what sanctions there are against a company that contravenes the UN guiding principles on business and human rights in that its grievance mechanisms are neither transparent nor equitable?

Lord Ahmad of Wimbledon: My Lords, the Financial Conduct Authority, which includes the UK Listing Authority, is authorised to fine, suspend, prohibit, order injunctions and bring criminal prosecutions, or take other actions against firms or individuals acting illegally. The UN guiding principles are, of course, a voluntary framework, so sanctions would not be applied. But most companies understand the business argument for having transparent grievance mechanisms, not only for their own employees but also to hear local concerns in which they operate.

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Bovine Tuberculosis


2.51 pm

Asked by Lord Dubs

To ask Her Majesty’s Government whether they have any evidence about the impact of artificial insemination of cattle on the spread of bovine tuberculosis.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, there is, indeed, a debate among veterinarians on this matter. While the evidence does not provide a definitive answer, it is important to note that TB has been eradicated from Scotland and many other countries despite the use of artificial insemination and, furthermore, that bovine TB was already endemic throughout Great Britain well before the widespread adoption of AI in the 1950s.

Lord Dubs (Lab): My Lords, is the Minister aware that I got the idea for this Question through talking to a local farmer in my valley in Cumbria? He told me that, although there were many badgers in the valley, there was no bovine TB at all, and that local farmers did not use artificial insemination. Given that there is at least some scientific basis for this, would it be right to pursue this rather than going for a badger cull for which the scientific evidence is doubtful?

Lord De Mauley: The noble Lord will not be surprised to hear that I do not agree with the last thing he said, but he might be interested to know that bull pedigree and TB data analysis of Holstein Friesian bulls, carried out by the Roslin Institute for Defra, have shown clear evidence of genetic variation to bovine TB susceptibility with a moderate heritability of 18%. However, no link was found in those studies between selection of bulls for milk yield and greater susceptibility to bovine TB. The study authors went on to conclude that,

“selection for milk yield is unlikely to have contributed to the current”,

bovine TB epidemic in Great Britain.

The Countess of Mar (CB): My Lords, is it not the case that the bulls chosen at insemination centres are kept to the very highest health standards and are not exposed to TB in any way, and that artificial insemination is probably safer than the ordinary method of insemination?

Lord De Mauley: The noble Countess makes an extremely good point, and I cannot disagree with what she says.

Lord Soulsby of Swaffham Prior (Con): My Lords, artificial insemination has been a practice in this country in dairy cattle for more than 30 years, and I wonder where this suggestion has come from. There is very little evidence—no evidence whatever to my mind—that AI can result in the transmission of TB to cattle.

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I hope that the Minister will scotch that idea, because we have an amazing health record in this country for AI and tuberculosis control.

Lord De Mauley: I am most grateful to my noble friend because he enables me to say, perhaps more categorically than I said to start with, that research indicates that there is no link between TB susceptibility and milk production traits.

Lord Clark of Windermere (Lab): Will the Minister accept my noble friend’s point that in many parts of the country there are plenty of badgers but no TB, and that one of the dangers is not the badgers bringing in TB to the cattle but cattle imported from other parts of the country being transferred into these areas?

Lord De Mauley: My Lords, that is something on which we can all agree. Indeed, our strategy is based on TB being particularly rife in the south and west and moving northwards and eastwards, but in the part of the world that the noble Lord, Lord Dubs, comes from it is not yet endemic in the badger population. What we find in the high-incidence areas is that it forms a reservoir in that element of wildlife, unfortunately badgers. As I say, our strategy is built on trying to slow the spread across the country.

Viscount Ridley (Con): My Lords, I declare an interest as somebody who has just sold a much loved White Park bull from Northumberland to Gloucestershire, where it promptly got TB and died. The lesson I have learnt is that in future I am going to use artificial insemination instead so as not to risk these animals.

Lord De Mauley: That is a lesson to us all, my Lords.

Baroness Parminter (LD): My Lords, the Minister said that there is an ongoing debate about the role of artificial insemination, and therefore it could merit further research. I suggest that the Government could use the money they are putting aside to research the gassing of badgers, which was deemed inhumane by a Member of this House’s committee in the 1980s.

Lord De Mauley: I can confirm to my noble friend that we are indeed continuing research into AI.

Lord Elystan-Morgan (CB): The Minister may well recall some weeks ago, in reply to a supplementary question which I raised, that I was told that about 50% of bovine tuberculosis was attributable to badgers and about 50% to other sources. Can the Minister tell the House roughly, in the last financial year or in any other meaningful period, how much money from public sources was spent in relation to non-badger-related bovine tuberculosis?

Lord De Mauley: My Lords, perhaps I should clarify the answer I gave to the noble Lord. Research by Professor Christl Donnelly indicates that up to 50% of

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infections in the high-incidence area are due to badgers. Bovine TB can affect a wide range of species, including pigs, sheep, goats and camelids; it can affect wildlife—for example, badgers and wild deer—and pets, including cats and dogs, and of course humans. The key thing, however, is that in cattle and badgers the infection is self-sustaining. It is thought that most other species generally only act as spillover hosts.

Lord Knight of Weymouth (Lab): My Lords, the Government’s strategy is obsessed by badgers and the transfer in what is a really difficult issue for farmers and is costly to the taxpayer. What are the Government learning from the recent outbreak of bovine tuberculosis in County Durham, clearly caused by cattle-to-cattle transmission?

Lord De Mauley: I cannot accept the noble Lord’s first contention, but in response to his question about Durham, this is a beef-fattening unit, and it will therefore have bought animals in from elsewhere. That is why we introduced risk-based trading in partnership with auctioneers and the industry, to provide fuller information about TB status and history of selling herds to the market. Initially this is on a voluntary basis, but we will look at it again if necessary. We are also considering post-movement testing of cattle for those moving from high-incidence areas.

Baroness Hayman (CB): My Lords, when I arrived at the Ministry of Agriculture in 1999, I was told that a vaccine for bovine TB was 10 years away. I was quite enthusiastic until I learnt that every Minister for animal health during the past 40 years had been told that a vaccine was 10 years away. More than 10 years further on—and I suspect that the same message has been given ever since—could I ask the Minister what the timeframe is now thought to be?

Lord De Mauley: That is a very interesting question, because we had the same discussion with the EU commissioner, Commissioner Borg, on that very subject and he, rather surprisingly, gave the same date. Developing both an oral badger vaccine—noble Lords will know that an injectable badger vaccine already exists—and a cattle vaccine remains a top priority for the Government. Since 1994, more than £43 million has been spent on developing a cattle vaccine and an oral badger vaccine. We have committed to investing a further £15.5 million in vaccine development over four years, but it is an extremely complex issue, involving extensive field trials and so on.

Local Authorities: Child Protection


3.01 pm

Asked by Baroness Howarth of Breckland

To ask Her Majesty’s Government what steps they will take to ensure that local authorities have sufficient social workers employed to undertake child protection work in their areas.

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The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con): My Lords, local authorities are responsible for judging what the level of need is locally and recruiting accordingly. Ofsted inspects children’s services and, if an authority is judged inadequate in its provision, we intervene. We should not judge the success of local authority children’s services solely by the size of their workforces. Management is also very important, as is the quality of social workers. However, since 2010, we have spent nearly £0.25 billion on social work training programmes and I am delighted to say that one of these, Frontline, has received more than 5,000 applications from top graduates in just a few weeks for its first 100 posts. The other, Step Up to Social Work, for career-changers with good first degrees, has already trained nearly 400 people and has a third cohort of 320 people in 76 local authorities beginning next year.

Baroness Howarth of Breckland (CB): I thank the Minister for his reply, but only last week the Association of Directors of Children’s Services said that child protection services in England were under greater pressure than ever. We also heard last week that, following the Francis report, the number of nurses in hospital wards is to be monitored. We have a ratio for the number of children to teachers in education, yet social workers up and down the country are left to deal with uncontrolled caseloads—when the next case comes in, someone has to take it.

With the number of children in care at the moment at a higher level than in the past 30 years and social workers suggesting that the level of need required to get support is greater, is it not time for the Government to do even more to intervene? The position is dangerous for children at risk and social workers alike, and responding simply by saying that social workers are committed and hard-working, and that more money is now being put in, is not good enough. Are the Government waiting for the next report of a child’s death, when no doubt it will not be the institution seen as responsible but some poor individual social worker? Is it not time that greater attention is paid at a national level to what is a crisis in our children’s services?

Lord Nash: The noble Baroness speaks with great experience in this area and anything she has to say on the subject we should all listen to very carefully. We all acknowledge that social workers have a very tough job and, of course, we hear only about the disasters—there are plenty of Daniel Pelkas or Hamzah Khans whom they save and whom we never hear about. It can be a question of volume of cases, but there is evidence that there is no direct correlation between failure and caseload; indeed, a number of local authorities have failed with relatively mild caseloads. It is a question of managing those caseloads and whether the more experienced social workers get the more difficult cases. The Troubled Families programme, for which we have just announced an investment of a further £200 million, is undoubtedly helping in this regard, as are innovative ways of working such as those seen in Hackney. It is also a question of local authorities recruiting better managers for these services.

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Baroness Eaton (Con): In the light of the increased numbers of children in care, what steps is my noble friend the Minister taking to ensure sufficient numbers of adoptive parents are recruited?

Lord Nash: My Lords, this matter is at the top of our list of priorities and my right honourable friend the Secretary of State for Education feels extremely strongly about it, as does my colleague Edward Timpson. We have established the adoption leadership board to drive improvements in adoption recruitment. We have the adoption scorecard, and the adoption support fund for voluntary agencies. We have invested £150 million in the adoption reform grant, and are encouraging partnerships between local authorities and voluntary agencies. Through the Children and Families Bill we are also opening up access to the adoption register.

I can report some good news. Today we announced that in the past year we have recruited just over 4,000 new adopters, an increase of 34%. Nevertheless, the gap between children waiting to be adopted and the numbers of adopters is sadly still widening.

Baroness Pitkeathley (Lab): My Lords, does the Minister agree that child protection, such as that called for by the noble Baroness, Lady Howarth, requires not just numbers but intense social work casework with troubled and problem families? If there were sufficient people undertaking enough of that, would it help to address some of the horrific problems that we heard about this morning from the Deputy Children’s Commissioner of children being forced into sexual activity, often associated with violence, at an unacceptably young age?

Lord Nash: The matters to which the noble Baroness refers are of course shocking. As I say, we have innovated and started the Troubled Families programme. It seems to be working well and having quite substantial effect, which is why we are expanding it to 400,000 high-risk families until 2016.

Lord Storey (LD): My Lords, my noble friend the Minister will be aware of the child protection register, which is an important means of recording children at risk. There is also an opportunity to be proactive through use of this register. What plans do Her Majesty’s Government have for the child protection register in future?

Lord Nash: I will have to write on this to my noble friend and will do so.

Baroness Hughes of Stretford (Lab): My Lords, in the light of the shocking findings published today by the Children’s Commissioner—that the extensive use by boys of adult pornography is fuelling sexual exploitation and abuse of girls on an apparently massive scale—what action are the Government taking to ensure that social workers and teachers in particular are better equipped to protect young people from this new and escalating abuse taking place among them? In view of the widespread concern across the House about these

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serious issues, will the Minister host a meeting with the commissioner and interested Peers to discuss further her findings and recommendations?

Lord Nash: We take this matter very seriously. There are a number of programmes from CEOP and UKCCIS to help teachers in this regard and we are strongly focusing on this. I would be delighted to host the meeting to which the noble Baroness refers.

Defamation (Operators of Websites) Regulations 2013

Judicial Appointments (Amendment)Order 2013

Special Immigration Appeals Commission (Procedure) (Amendment) Rules 2013

Motions to Approve

3.08 pm

Moved by Lord McNally

That the draft regulations, draft order and draft rules laid before the House on 14 and 21 October be approved.

Relevant documents: 10th and 11th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 19 November.

Motions agreed.

Financial Services (Banking Reform) Bill

Report (1st Day)

3.08 pm

Relevant documents: 8th and 12th Reports from the Delegated Powers Committee.

Clause 4: Ring-fencing of certain activities

Amendment 1

Moved by Lord Barnett

1: Clause 4, page 4, line 37, leave out from “activity” to end of line 38

Lord Barnett (Lab): 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

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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.

3.15 pm

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.

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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

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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

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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.

Lord Eatwell (Lab): My Lords, I am grateful to my noble friend for moving his amendment and for pointing out the extraordinary complexity and confusion about the procedure that the Bill has gone through to get to this stage. As he pointed out, it came from the Commons as 35 pages and is now 170 pages. Substantial matters were introduced in Committee. Substantial errors were identified in Committee—even, as we shall hear, regarding the definition of a bank in a Bill on banking.

More substantial material is now being introduced under the more restrictive circumstances of Report, and I hope that the government Whips will restrain themselves if the rules are bent somewhat in our attempt to scrutinise nearly 200 new government amendments effectively. Yesterday, on the “Today” programme, the Chancellor announced that further substantial amendments will be introduced at Third Reading with respect to payday loans. Then the Treasury was circulating extra material in e-mails after 9pm last night. We have received copies of correspondence dated today between the Chancellor and the Governor of the Bank of England that changes the perspective on leverage. These measures are relevant to the most important industry in this country, and are measures to which we are supposed to give our consideration.

The correct procedure for a Government who are serious about getting this legislation right is to recommit the Bill. If they undertake that responsible step then we on this side of the House will give them every assistance in ensuring that the passage is completed within the restrictive timetable of a carryover measure. I understand the nature of the restrictions and realise that the Minister cannot make this decision at the Dispatch Box. However, will he at least give the House an assurance that he will take this proposal seriously and ensure that the usual channels also take it seriously?

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On Amendment 1, moved by my noble friend, will the Minister tell us exactly what the phrase which my noble friend wishes to have omitted actually means? Can he give the House an illustration of the circumstances in which the taking of deposits from UK households and SMEs would not be a ring-fenced activity as the phrase suggests?

3.30 pm

The Commercial Secretary to the Treasury (Lord Deighton) (Con): My Lords, it is a great pleasure for me to resume our debates on the Bill. We do not believe that there is any need to recommit it. These are radical and important reforms—ring-fencing, bail-in, depositor preference, a new senior person’s regime and new criminal sanctions. The Government wish to put them in action, move forward and leave the period of deliberation behind. We wish to end the uncertainty for the economy, consumers and taxpayers that prolonged reviewing can bring. Where the reforms can be improved to increase their effectiveness, the Government have been prepared to listen, and you will see that we have responded. However, where the Government do not believe the proposals are backed by evidence, or are unreasonable, we have respectfully disagreed and set out our reasons. This is the approach that we have taken to all the amendments.

Specifically on Amendment 1, from the noble Lord, Lord Barnett, the ICB recommended that only retail deposits—that is, the deposits of individuals and small businesses—should be ring-fenced. This amendment would require all deposits to be ring-fenced. The ICB recommended that large organisations and wealthy individuals should be able—though, importantly, not obliged—to deposit with non-ring-fenced banks. This was because these depositors are sufficiently financially sophisticated to tolerate an interruption in access to a single bank, for example because they have multiple banking relationships. These sophisticated depositors therefore do not need the protection that is being mandated inside the ring-fence provides. They may choose to deposit in a ring-fenced bank if they wish, of course. It also provides a little bit more competition. It gives wealthy individuals and businesses the opportunity to shop around.

Large corporates and financial institutions also use complex financial products which ring-fenced banks will rightly be prohibited from selling. To obtain these products, such as complex derivatives, large companies or financial institutions will need to go to a non-ring-fenced bank. Given this, it is reasonable that these customers should be permitted also to deposit with non-ring-fenced banks, as the ICB recommended. The Government accepted the ICB’s recommendation. Therefore the Bill allows the Treasury to specify by order that a non-ring-fenced bank can accept deposits in certain circumstances.

The deposits of individuals—other than very wealthy and sophisticated ones—and small businesses will have to be within the ring-fence. There is no compulsion for large organisations or wealthy individuals to deposit outside the ring-fence, only the option for them to do so if they so choose. This option is provided for in secondary legislation. The Government published a draft of the relevant order for consultation in July this

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year. It is appropriate that detailed provisions such as this should be made in secondary rather than primary legislation to allow the legislation to keep pace with future developments in the market and to keep it fit for purpose. This approach was endorsed by the PCBS in its first report.

It is also important to highlight that under the Bill the Treasury does not have unlimited power to determine which deposits do not have to be ring-fenced. The Treasury may only allow deposits outside the ring-fence if it is convinced that doing so does not undermine the ring-fence and that the depositors concerned do not need the protection of the ring-fence. This is therefore a constrained power that is needed to implement the recommendations of the ICB. I therefore urge the noble Lord to withdraw his amendment.

Lord Barnett: My Lords, I do not think that the Minister has dealt with the central arguments about separation; he dealt mainly with something quite different and did not reply to my questions. Whether or not he has the information to hand, perhaps he could think about whether the staff of the FSA received millions of pounds in compensation for redundancy before they were reappointed to the FCA. Can he at least tell us that?

Lord Deighton: The central question of full separation is in Amendment 2, which we will address next, and we can go on to discuss it. With respect to the FSA redundancy arrangements, I would be delighted to write to the noble Lord with that information when I have it at my fingertips.

Lord Flight (Con): My Lords, can I ask the Minister for a little clarity on ring-fencing in terms of what is in this pot and what is in the other pot? The point he has made is that the ring-fenced pot will essentially be individual family deposits while commercial deposits would be outside the ring-fence; but what about the other side of the balance sheet in the sense of which part of the loan portfolio is to be in the ring-fence and which part is to be outside it? My previous understanding was that the ring-fence was going to be all deposit-taking and all lending. My reservations, if you like, with regard to the Glass-Steagall solution are that history has shown it is lending and not investment banking that has always caused banks trouble. This time round it was CDO lending and the unwise lending by HBOS and RBS that actually caused the banks trouble. The idea of separating absolutely banking and investment banking as a great protection for the deposits of ordinary citizens is entirely false in terms of economic history.

Lord Deighton: The clarification is that the ring-fence effectively operates on the liabilities side, so we are dealing with core deposits. Just to correct the point and make it clear, the most sophisticated investors can be either inside or outside the ring-fence, and they have the choice. However, the asset side of the bank’s balance sheet is unconstrained in the rules.

Lord Barnett: My Lords, I will withdraw Amendment 1 and then move Amendment 2, although I spoke to it generally in my first speech and I do not wish to detain

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the House for too much longer. But as the noble Lord, Lord Lawson, said at the time, these are two totally different cultures and it is going to be virtually impossible to put the two together—those were his words. I therefore suggest to the Minister that Glass-Steagall, which worked for 60 years in the United States, could be made effective here if we had stronger regulations to make sure that those banking lobbyists could not succeed in stopping the separation. That was the major point that I made, and will continue to make. That is also where I would like to leave it so that the Minister can reply to Amendment 2. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendment 2

Moved by Lord Barnett

2: Clause 4, page 7, line 22, leave out from beginning to end of line 42 on page 10 and insert—

“Group restructuring powers

142K Group restructuring of ring-fenced bodies

(1) A ring-fenced body may not be part of a group which—

(a) carries on an excluded activity or purports to do so, or

(b) contravenes any provision of an order under section 142E.

(2) The appropriate regulator must exercise the group restructuring powers if it is satisfied that a ring-fenced body is operating in contravention of subsection (1).”

Lord Barnett: My Lords, I beg to move.

Lord Deighton: My Lords, this Bill legislates for ring-fencing. That is the Government’s policy, not Glass-Steagall-style full separation. The Government support ring-fencing, but not as a compromise option or a lukewarm version of separation, and not as a watered-down policy. Rather, the Government have adopted the ring-fence after careful consideration of the recommendations of the Independent Commission on Banking. As noble Lords will recall, the ICB was established in June 2010. It deliberated for 15 months before making its recommendations in September 2011. As part of its deliberations, the ICB considered full separation as an alternative to ring-fencing, but it rejected that alternative and instead recommended ring-fencing. The Government have accepted the ICB’s recommendation, and the commission set out its rationale for rejecting full separation in its final report.

Let me remind the House of the ICB’s line of reasoning. The ICB argued that an effective, robust ring-fence would deliver the same benefits to financial stability as full separation, on the model of Glass-Steagall. A robust ring-fence will insulate vital retail banking services from shocks to global financial markets—for example, reducing the risk that British high-street banks will be brought down by swings in the prices of complex securities. Let us recall, too, that retail banking has its risks and that market discipline demands that badly run banks must be allowed to fail. If a retail bank fails, a robust ring-fence will enable the authorities to manage that failure in a controlled way, with essential services kept running with the core deposits we were talking about, but without any injection of taxpayers’

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money. So, a strong ring-fence will minimise the chance that a future Government will ever be forced to bail out a failing bank. The moral hazard that encouraged excessive risk-taking before the recent crisis would be removed.

The ICB argued that a robust ring-fence would deliver the same benefits as full separation, and would avoid some of full separation’s main disadvantages. In particular, a ring-fenced bank that found itself in financial difficulties could be supported by other group members, such as a healthy sister investment bank. Full separation would not allow this. Essentially the ring-fence is a valve; it does not let any of the bad stuff get into the ring-fence but allows support to come in if it needs it.

Under ring-fencing, a banking group could offer a one-stop-shop service to customers, especially business customers, so there is a strong marketing advantage to the group. Deposits or simple loans could be arranged with the group’s ring-fenced bank, while more complex products are supplied by the group’s investment bank. Full separation would not allow this. Finally, the ICB estimated that by denying banks the legitimate benefits of diversification, full separation would impose higher costs—costs that would likely be passed on to banks’ customers and to lending.

In summary, ring-fencing will bring the same benefits as full separation, but with fewer disadvantages. A rational, sober evaluation of the two thus brought the ICB to identify ring-fencing as the superior policy. I would like to use this opportunity to put paid to some myths around ring-fencing versus full separation. First, some claim that full separation is simpler to legislate for, and there is no complexity. Any separation of banks’ business will inevitably involve detailed rules to specify where the line, whether it is a ring-fence or a complete separation, is to be drawn, and prescribe which activities must take place either side of that line. As banks’ business is complex and involves a wide range of different products and services, so drawing that line will inevitably be complex. But a line will have to be drawn and someone will have to decide what is in each separated type of bank. It is the same problem for ring-fencing and full separation.

Secondly, either form of separation will, unless vigilantly maintained, be vulnerable to erosion or bank lobbying. There are plenty of examples of that through history. I do not, therefore, accept that full separation is either more simple or more robust than ring-fencing. As I have already said, the ICB conducted an exhaustive and detailed investigation of the case for different types of structural reform before coming to its recommendation in favour of ring-fencing. That recommendation commanded a wide consensus—including regulators, industry and the Opposition. Let me quote the shadow Chancellor speaking in the Commons when the Government first responded to the ICB in December 2011. He said that,

“we, too, support the commission’s radical reforms on ring-fencing”.—[

Official Report,

Commons, 19/12/11; col. 1074.]

Of course, no matter what the weight of evidence, there will always be some who disagree with the consensus. But to those who advocate full separation as an alternative, we need to ask: what is the evidence that supports this

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alternative policy? Throughout this process so far, the Government have openly invited others to give their views and present new evidence. We consulted widely, and submitted this Bill to pre-legislative scrutiny by the PCBS to seek its input. I do not think that the PCBS produced hard evidence in favour of full separation. It presented nothing that compared the two proposals, although it elicited some strong expressions of scepticism on whether it would work. Those are valid. It is certainly a new way of doing things.

3.45 pm

Where reasonable, the Government have accepted changes to the Bill that would address these concerns about the efficacy of ring-fencing. For example, Andrew Bailey, head of the PRA, argued for greater clarity over the regulator’s objectives. Similarly, Andy Haldane of the Bank of England told the PCBS that:

“The following ingredients are essential if this ring fence is not to prove permeable: ... separate governance ... separate risk management ... separate balance sheet management, treasury management ... separate remuneration structure ... separate human resourcing”.

So the Government clarified the regulator’s objectives, and have specified the parameters for the regulators’ rule-making, placing the Haldane principles in the Bill. We have thus made the changes that the regulators—the experts who will police the ring-fence—said were needed to make the ring-fence work. We have also taken on other reasonable suggestions made by the PCBS and others to make the ring-fence more robust. For example, we have accepted the PCBS’s proposal to electrify the ring-fence by giving the regulator power to separate a banking group that fails to uphold the ring-fence. We have agreed to use the affirmative resolution procedure to deal with changes in secondary legislation to the ring-fence.

Responding constructively to suggestions from all sides, we have thus addressed concerns over the robustness of the ring-fence—the sole argument that has so far been advanced against it. The regulators are now content that the ring-fence can be made to work. As it is they, not Parliament, who will police the ring-fence, we must take their views seriously.

Some members of the PCBS may shortly argue that a further reinforcement of the ring-fence is required, in the form of full separation framed as a deterrent—not to be implemented immediately, as in this amendment, but triggered following a future review. They will argue that this is a much more reasonable position than that taken by the noble Lords, Lord Barnett and Lord Peston. As I will explain, the Government do not accept that a provision for full separation can act in support of the ring-fence as a deterrent. Rather, it is a different policy, where a reserve provision is an inappropriate way to legislate. It is at best unhelpful, at worst bad law-making.

I am very grateful to the noble Lords, Lord Barnett and Lord Peston, for calling a spade a spade, and acknowledging in this amendment that full separation is an alternative policy to ring-fencing, not a complement. To take that alternative would be to abandon the ring-fence. It would be contrary to the weight of evidence and analysis assembled by the ICB, without being grounded in a robust evidence base of its own.

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It would be a policy based purely on assertion and scepticism. The Government cannot accept that, so I call on the noble Lord to withdraw his amendment.

Baroness Cohen of Pimlico (Lab): My Lords, I have spoken before against ring-fencing and for full separation. We may not be in any kind of agreement on that, but what we ought to be in agreement on is that ring-fencing will require particularly scrupulous and detailed regulation. It will require more of our regulators than full separation, because institutional separation to some extent requires less regulation.

I wonder whether we are quite sane in putting so much faith in our regulators. The people who gave us Mr Flowers as chairman of the Co-operative are hardly those I feel very confident about exercising the very complex regulation that ring-fencing will require. It is complex and it is difficult. It is more difficult than it needs to be than with the policy of full separation. I therefore continue to support my noble friend Lord Barnett in his amendment.

Lord Barnett: My Lords, the Minister has told us that the Government consulted widely and got agreement. Well, more recently, there were 300 professionals who were consulted in a survey and only 35 of them thought it would work. I do not know who he consulted. He also talked about the robust regulations. Who is going to supervise these robust regulations—the old FSA, now called the FCA? Is he confident that it can? I am certainly not clear myself, nor do many people have a lot of confidence that the old FSA, now the FCA, can do that job. He is confident, however, that it can.

My noble friend Lord McFall pointed out what Volcker said to that committee: the chairman of a holding company, of which some part got into trouble because of the lack of regulation or whatever—what would he do? I know what he would do. He would seek to save it. These merchant banks may lose money at times—indeed they have done—but most of the time they make a lot of money and do not want to lose it. They want it separated, but under the same roof, with one holding company. That is what they have got and are going to get under the new administration.

I cannot see this regulation working and would like to hear the views of any other Member of the House who has an interest in this.

Lord Flight: My Lords, can I ask the Minister whether I am right in thinking that the PRA would be the main regulator of the balance sheets of the two entities under ring-fencing, and not the FCA, which is about protecting customers? Secondly, if there were a Glass-Steagall separation, is the job not exactly the same, in that you would need to look carefully at a separate investment bank and a separate banking bank to make sure that one did not have things in it which ought to be in the other? I would have thought that the job of regulating would be exactly the same as under a ring-fenced structure.

Lord Deighton: I agree with my noble friend’s explanation of the roles and responsibilities of the respective regulators in each case.

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The Lord Speaker (Baroness D'Souza): Does the noble Lord wish to withdraw his amendment?

Lord Barnett: If the House is no longer interested in the matter, I beg leave to withdraw.

Amendment 2 withdrawn.

Amendment 3

Moved by Lord Eatwell

3: Clause 4, page 17, line 15, at end insert—

“Full separation

142VA General requirement of separation

(1) Where the members of any group include one or more ring-fenced bodies and one or more other bodies, the members of the group must, before the end of the period of five years beginning with the relevant commencement date, take steps to secure that there are no members of the group that are ring-fenced bodies.

(2) If in the case of any group steps to secure that there are no members of the group that are ring-fenced bodies are not taken within the period specified in subsection (1)—

(a) at the end of that period the Part 4A permission of each member of the group that is a ring-fenced body shall be treated as having been cancelled to the extent that it relates to a core activity, and

(b) after the end of that period the appropriate regulator must refuse to give any member of the group a Part 4A permission to carry on a core activity.

(3) At the end of the period specified in subsection (1)—

(a) section 142H, subsections (1)(b) and (4) to (7), and, in subsection (8), the definition of “specified”, and

(b) sections 142K to 142V,

cease to have effect.

(4) In subsection (1) “the relevant commencement date” means the day appointed for the coming into force of section 4 of the Financial Services (Banking Reform) Act 2013 so far as it inserts this section.”

Lord Eatwell: My Lords, noble Lords will notice that Amendment 3 is identical to Amendment 6, which is in the name of the group of people who we could perhaps call the commissioners—members of the Parliamentary Commission on Banking Standards who have considered these matters with care and at great length. It is interesting that the noble Lord said just now that no evidence had been provided about issues associated with separation. The parliamentary commission provided extensive evidence, to which I would refer the Minister.

In speaking to Amendment 3, I will argue that the “reserve power” of full separation, as it was described by the parliamentary commission, is a logical and coherent part of the entire strategy of ring-fencing, which consists of three parts. First, there is the provision of the ring-fence itself. Secondly, there is electrification of the ring-fence in the case of individual groups that transgress and are subsequently required to separate. Thirdly, there is the measure put forward in Amendments 3 and 6, under which there is full separation where the process has not been followed successfully or appropriately by the banking industry.

The whole thrust of the commission’s report is about the need to maintain these three stages. Each reinforces the other. The noble Lord argued just now

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that the Government had seen no case at all for separation. Why then did the Government accept the case for the separation of individual groups should they transgress? That case came from the commission and the case for full separation came from the commission. If he accepts one, he should accept the other. It is quite ridiculous to suggest that the commission’s processes were somehow less rigorous than those of the ICB. Indeed, the whole package put forward in this group, which consists of the case for full separation as the final reserve power and the case for review, is a single coherent package. The case for review and the case for full separation, if that review should argue that ring-fencing is not working successfully, is a coherent structure set out by the commission. The Government are lopping off an essential leg of a three-legged stool.

Let us examine the arguments made against this amendment when it was first put by the commissioners in Committee. As well as the argument that it was somehow less rigorous—an argument that I think is almost offensive to the commission—the Government put forward the suggestion that, should the ring-fence not work, other options might be considered. The Minister raised the red herring of the possible introduction of a Volcker rule. Surely this is spurious, as here we have a coherent, structured package of three nested sets of measures to ensure the stability of the banking industry, which rely on and strengthen each other.

What I found most surprising in the Government’s rejection of the argument for full separation is that they rejected the idea that the ring-fence will consequently be made stronger by self-policing. The banks will have a major concern that others do not transgress lest they be caught in a final decision for full separation. The noble Lord said:

“The notion that banks will watch each other is not how the industry operates”.—[Official Report, 8/10/13; col.51.]

I must tell the noble Lord that that is exactly how a competitive market operates in a capitalist economy—everyone watches each other. The banking market is no different. Each pursues its own interest. As Adam Smith put it—the Chancellor of the Exchequer has taken to quoting him—it is not the benevolence of the butcher or baker that provides us with meat and bread, but the pursuit of their own interest. If the banks see it as being in their own interest to avoid full separation, we can be sure that they will take all necessary steps, including mutual surveillance, to ensure that full separation does not take place. That is why the commission’s proposal is such a strong one. It strengthens the ring-fence by giving those within it the incentive to ensure that it be maintained and be not transgressed. That is why this is a coherent package.

The Minister omitted to mention that the proposals for full separation are predicated on a thorough, independent review of the progress of ring-fencing. We have not only a nested structure, which strengthens at each stage, but, in the amendments put forward by the commissioners, a process of independent review that suggests when each stage should be introduced. That is why, for example, Amendments 15 and 195 are consequential on Amendment 3 and, with respect to Amendment 6—the identical amendment put forward

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by the commissioners—Amendments 15 and 196 are consequential. Those amendments involve the review of the entire procedure.

If we are to have a successful ring-fence, what better than to have a structure that incentivises the banks within it to maintain the integrity of the ring-fence? That is what the commission’s three-stage process does. I beg to move.

4 pm

Lord Lawson of Blaby (Con): My Lords, this is a very important Bill indeed. We all know the great damage that the banking meltdown in the western world has caused, not least in this country. This Bill seeks to deal with that. There are few more important matters—there may be more important matters in the world but they are not susceptible to legislation. This is a vital matter that we can do something about by legislation, and that is what this Bill is about.

In chronological order, I thank the noble Lord, Lord Barnett, for the kind things he said about points that I had made in earlier debates on this Bill. I agree with much of what he said. I also agree with much of what the noble Lord, Lord Eatwell, has just said. I congratulate the Government on setting up the Vickers commission, on having accepted the recommendations of the Vickers commission and on their amendment endorsing part of the recommendations of the Parliamentary Commission on Banking Standards, of which I was a member. The most reverend Primate the Archbishop of Canterbury was a distinguished member; I hope that he will contribute to our debate. The noble Lords, Lord Turnbull and Lord McFall, whose names are on Amendment 4, were also commissioners. I congratulate them on suggesting that there needs to be a review.

The Government have moved a very long way—and I am delighted—but not quite far enough. That is what we are discussing in this group of amendments. To get to the core of the issue, what the Vickers commission concluded and what the Government have accepted is that there is a problem with the relationship and, indeed, the mixing of commercial and retail banking with investment banking. The Vickers commission accepted that; that is why it introduced the ring-fence. The Government accepted that; that is why they accepted the recommendation of the Vickers commission for the ring-fence.

I have always been in favour of full separation—I came out publicly in favour of it long before the Vickers commission was even set up. We know that this works. It worked in the United States for many, many years under the Glass-Steagall arrangements and it is no accident that serious problems emerged after the Glass-Steagall Act had been repealed. Indeed, the Glass-Steagall Act would have worked for a great deal longer had not successive American Administrations been lobbied by the banks to introduce loopholes in one place and another. Anyhow, that is water under the bridge.

What is the danger? The danger accepted by the Vickers commission and the Government is twofold. First, although my noble friend Lord Flight is absolutely right that ordinary, plain, vanilla banking is a very

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risky business and often goes wrong, there is one particular range of risks in lending: the bad lending. In investment banking you had a whole new and very complex range of risks. It is not the case that nothing has ever gone wrong there; for example, there have been huge problems with derivatives that are a product of the complexity of investment banking. So there is first the question of whether it is sensible—when straightforward, plain, vanilla banking is risking enough —to add to that a whole new range of risks, a whole new complexity, which can make it more likely that the retail deposit-taking banks will get into difficulties. It must be unwise to do that.

The other problem is about the cultures. The Vickers commission did not talk about this, or think about it; it did not raise the issue of culture. But culture is very important. I was glad that when my right honourable friend the Prime Minister introduced the setting up of the Parliamentary Commission on Banking Standards, he explicitly said that it needed to look at the culture of banking, because something had gone wrong with it.

The culture of retail banking and the culture of investment banking are two quite separate things. One is, or should be, a culture of caution and prudence; the other is a culture of creativeness—which is very desirable—and risk-taking of a totally different order. That is another thing that the Vickers commission did not look at.

Now we come to the question of whether the proposal for a ring-fence will do the trick. We do not know. In the Parliamentary Commission on Banking Standards, we decided that although we had our doubts, it should be given a chance—but that there should be a proper review process, so that if it is proved not to be working, we shall move to something that will work.

Another of the things that the Vickers commission did not consider is the problem of governance. The ring-fence is a curious system, because there is one company with two subsidiaries—the retail bank and the investment bank—and we are told that they are completely separate, yet they are together. There is a real question whether that model of governance is workable. I know of distinguished bankers—at least one of whom is present in the Chamber as I speak—who have grave doubts on this score.

There is also a problem within the law. Boards of directors are responsible to the shareholders, so if there is complete separation it is clear that the board of the retail bank has responsibility to the shareholders of the retail bank and the board of the investment bank has responsibility to its shareholders. But under the ring-fence proposal there are two entities that we are told are completely separate, yet there is a single group of shareholders to whom they are responsible. We do not know whether this will work. We do not know whether there might be cultural contamination across the ring-fence. There is no legislation that can prevent cultural contamination, and that would be a very serious matter.

In the commission, we said that two kinds of review powers were needed. The first would look at individual institutions. If, after a number of years, we find that an institution has found a way round, or has burrowed

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under, the ring-fence and found a way of evading what the Government and Parliament decided, it should be obliged to separate its retail banking and its investment banking. But we also said that a second kind of review power was vital. The proposed system is a right idea of the Vickers commission. A number of the Vickers commission are friends of mine, they are very clever, and I have nothing against them—but they do not know whether it will work either. It has never been tried anywhere in the world, whereas complete separation has been tried, and it has worked. So it is vital that if the system proves not to do the trick, we move to complete separation.

Therefore, we need two kinds of review. The first is a review of an individual institution behaving in a way that undermines the ring-fence, and the second is a review to consider whether the system itself does the trick. The government amendment accepts in principle the first kind of review, but it does not accept the second kind.

I ask my noble friend to give a firm assurance that, as part of the review, the Government will look at whether the system is working and, therefore, whether full separation will be moved to. With the best will in the world, I know that he will wish to make it work, that the PRA and FCA will wish to make it work, and so will Uncle Tom Cobley and all. But if it is not working, will the Government look at full separation? Unless that undertaking is given here, in this House, I will seek to take the opinion of the House on Amendments 5 and 6, which are linked. Amendment 6 derives from Amendment 5, as noble Lords will know.

Given that the Government have gone so far, which I welcome, I hope that they will be prepared to make this further step and give this clear undertaking to the House.

Lord Flight: My Lords, I have broadly been in support of a Glass-Steagall separation of investment and banking banks, but there seems to me something slightly wrong with the concept of having a review and prejudging the outcome of that review. Playing devil’s advocate, I make a point on the other side of the coin. Europe has had universal banking for a long time; that is the banking tradition in continental Europe and there is still a case for universal banking to continue, although it is right out of fashion now. I repeat my point that, to a fair extent, the profits of investment banking have subsidised ordinary banking and benefited ordinary retail customers; the losses have generally come from bad lending. So it is slightly premature to prejudge the review. I cannot see what is wrong with having a review with the understanding that the Government will act on the basis of the recommendation of that review at the time. We will have moved on from the present and other factors may have come to light as well. I do not see what is gained by prejudging the result of the review.

The Archbishop of Canterbury: My Lords, as did the noble Lord, Lord Lawson, I begin by expressing my gratitude to the Government that they have listened to the speeches of many noble Lords and my PCBS colleagues on the need for a full and independent review of the ring-fence. I hope that they will realise

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that the amendments that have been tabled today are the final pieces of the puzzle in this regard. This work, combined with the vast improvements that we have seen to the electrification of the ring-fence—what is officially known as the first reserve power—is most welcome. The noble Lord, Lord Eatwell, put the case very clearly, not only for them but for the second reserve power. The Government’s approach to that is so far disappointing.

The Minister said that he believed that a robust ring-fence will work, and so do we, as the commission. It is just that we do not think that it is robust—that is the problem. The point of the second reserve power is to make the ring-fence sufficiently robust that it will carry the day if the first one is over a period of years overwhelmed.

The swirling floods unleashed in 2008 with the banking collapse continue to cause eddies all over our economy, particularly in the most vulnerable parts, which so many of us on these Benches are so deeply involved in supporting. Both the ICB and the PCBS concluded that the most appropriate way in which to reform the structure of the industry today is to have the ring-fence within a parent company. It is experimental —we hear the arguments, and we know so. This partial structural separation, with the added provision of ring-fence, should create a disincentive for banks to attempt to test the limits or game the ring-fence, but “should” is not sufficient.

The advantage of the second reserve power and the first reserve power together, in addition to the ones that the noble Lord, Lord Eatwell, put so eloquently, is that they give a second shot to the gun. If the first reserve power fails, and a bank or two has been forced into full separation but the whole industry is still gaming the system, then you have still got the second reserve power. It appears that the Government’s policy on this is to have only one shot and then to say, following that, “We’ll do something. As yet, we know not what. But we will do something, and it will be something very, very serious”.

4.15 pm

This, however, is a structure that has to last for the next 30, 40 or 50 years. We do not want to be repeating this. We have sat here long enough over the past year. The pain of the 2008 crisis has already begun to dull. I heard a few days ago from a senior manager of a major bank that 70% of his dealers had taken up their occupation since the crash. The corporate memory will fade very rapidly. Within 10 years there will not be one at all.

That brings us to the second reserve power. This amendment does not include the appropriate split for the full separation power in the Bill. We recognise that it has already been said, and I agree with that point, by Lord Flight, that what is appropriate now may not be appropriate in five years’ time. We cannot tell exactly what will be necessary. That is why the review should be a broad-based review that includes the possibility of a full separation.

The Government have argued, and will argue, that full separation is something of a game changer and that such change should and can only come through

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primary legislation. The threat of action, however, against the industry gaming the ring-fence must be greater than the current perception, which appears to be one, as far as the banks are concerned, of “Well, if we have gamed the system universally, if there is the political will and the legislative time, and our lobbying efforts fail, then the Government might produce a Bill, and then we might be in trouble”.

The inclusion of full separation in the inquiry provides a certain measured, proportionate and existential threat which makes it clear that gaming the ring-fence will be a serious mistake for the banks to make. We have already heard that, in doing this, we create an added incentive of a self-regulating and self-policing atmosphere within the banking industry. The idea that banks do not watch each other is, as the noble Lord said, incredible.

When I was in the banking business 35 years ago, the first thing I learnt from my Norwegian boss was, “These banks, they are like sheeps. They all follow each other”. His English was perfect except that he could not handle the plural of “sheep”. I remember that and remember observing that, like all good competitors, if they saw a good thing they moved into the same space. It is how the industry works and how we want it to work.

The second reserve power is a vital component in the structural reform of our banking sector. I urge the Minister to look again at this recommendation of the PCBS. They have gone so far. Surely to add the possibility of full separation in the review is only a further small step and a very reasonable one. Recognising that we are trying to build a banking system for the next half century, not for the next five years, I urge the House to support these amendments.

Lord Hodgson of Astley Abbotts (Con): My Lords, I have not so far taken part in the debate on this Bill, although I participated during the passage of the earlier Financial Services Act. I therefore need to declare my interests as the chairman of two regulated entities and an as approved person under FiSMA.

I have listened carefully to the arguments deployed on both sides of this complex debate and have a couple of concerns about what is being proposed. The noble Lord, Lord Eatwell, described his amendments as designed to provide—I think that I have got the words right—a three-stage, self-reinforcing regulatory process. In doing that, he may have overlooked the degree of uncertainty that his amendments may cause. If I may follow his analogy further, I think that it is his amendment that may remove the third leg from the three-legged stool that he mentioned.

I agree with my noble friend Lord Lawson about the importance of reviews, particularly in cases where the likely outcome of fundamental legislation is so uncertain. In a parallel case in the Transparency of Lobbying Bill, I have tabled amendments that would have that Bill reviewed in a couple of years when one can begin to distinguish reality from supposition. I therefore favour reviews, but—and it is an important but—a review, as my noble friend Lord Flight said, must not begin with any presuppositions as to its outcome. If I may use a rather vulgar card-playing metaphor, one must not play with a loaded deck.

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Listening to some of the arguments so far, I formed the impression that these amendments could lead to a loaded deck because of the implicit power of the review to trigger separation without further primary legislation and therefore to introduce radical change without serious parliamentary consideration. As I read it, this would be the result of the House accepting Amendment 196. I think that this implication—and, of course, it is an implication—will weigh heavily on the banks and their executives and, as a result, be by no means to the advantage of the financial services industry specifically or the United Kingdom generally.

It is an oft-repeated truism that financial markets hate uncertainty. Perhaps I may offer at a rather lower level an example from my experience of what I mean. I was for a number of years a chairman of a network of independent financial advisers. For a prolonged period, the IFA sector suffered in the shadow of the uncertainty caused by the drawn-out processes of the retail distribution review. I have absolutely no doubt that the savings regime of this country, a very important part of our body politic, was set back by this elongated debate. I feel the same may be true for the banking sector if these amendments are passed.

Further, I am not quite clear how this approach will impose discipline, unless it is intended that some could suffer full separation and others would not. I have not yet heard that suggested by the noble Lord, Lord Eatwell, although I may have misunderstood him. If I, as a good guy, obey the ring-fence but am treated in exactly the same way as my competitor, a bad guy who has jumped the ring-fence, what incentive is there for me to follow the prescribed path?

My second area of concern can best be summed up by the well rehearsed argument that generals always plan to fight battles that are like the ones of the last war. Of course, we have discovered egregious examples of corporate and personal behaviour that took place in the period leading up to 2008, but it is by no means clear, to me at least, that ring-fencing or not ring-fencing will have any relevance to solving the next financial crisis—and, if history tells us anything, one will be along in due time.

Having listened to the arguments, I am forced to the conclusion that there should be a review but that it should be a review without preconceptions, and that, in any case, to trigger a move to full separation on the basis of secondary legislation, of which the ability of this House to scrutinise and amend is in my view woefully weak, would not be the right way to proceed.

Lord Lea of Crondall (Lab): My Lords, there are a lot of very interesting propositions in this group. Am I right in thinking that what is in due course printed in Hansard will be one amendment which is moved, with other amendments not printed because they are part of a single group? If so, how can one proceed with that?

Lord Phillips of Sudbury (LD): My Lords, surely there is no more important issue in relation to this banking situation than whether to go with ring-fencing or with separation—we have had that very clearly debated today. The noble Baroness, Lady Cohen of Pimlico, raised an issue in relation to that, which my

26 Nov 2013 : Column 1320

noble friend the Minister placed some emphasis on in responding earlier, as he did at the last stage of this debate—namely, to state that the cost of total separation would be exorbitant. The noble Baroness rightly made the riposte that the cost of policing the ring-fence will not be a one-off, as the cost of a separation would be; the cost will be year after year. The task of the regulators in policing a ring-fencing arrangement will be intensely difficult. It is easy to jibe at the regulators, but we may underestimate the extreme difficulty of doing a thorough job in this field, where you have a single holding company and two companies under it. I take the point made vividly by the noble Lord, Lord Lawson of Blaby, about cultural contamination that can easily infect a group, such as the one that the ring-fenced company will be part of.

I hope that my noble friend will feel able to accept Amendment 5. We are all speculating madly. To have a review of how this has gone, and to look at it coolly, objectively and professionally in the period prescribed, must make absolute sense. Frankly, it is not worth taking the risk of not having such a review. The cost of getting this wrong will be insupportable. We are apt to underestimate, in what has happened over the past five years, the cost to this country in all sorts of non-financial ways. We must not let it happen again. The review that Amendment 5 proposes must be prudent, sensible and ultimately economical.

Lord Hamilton of Epsom (Con): My Lords, I support my noble friend Lord Lawson’s amendment as well. Like him and the noble Baroness, Lady Cohen, I have always been a believer in Glass-Steagall, and in the complete separation of investment banks from clearing banks as the only way in which you can guarantee that there will be no contamination.

My noble friend the Minister described the ring-fencing as robust. I do not know how he can speak with such confidence about the robustness of the ring-fencing. I do know that many people in the City today are, as we speak, working on ways to get round the ring-fence and to make sure that money held in clearing banks can be used in investment banks. The problem is that there is an enormous financial incentive to get round this ring-fence. If that incentive remains when you do not have separation, it is only a matter of time before the clever people employed in the City will find a way round it.

I agree with my noble friend Lord Phillips. Much has been made of the cost of separation, but there is also the cost of ring-fencing. There are a one-off cost and a continuing cost. It would be regrettable if we did not support my noble friend Lord Lawson’s amendment and I intend to do so.

Lord Deighton: My Lords, before I turn to the substance of these amendments, I would like briefly to pause and reflect on the process that has brought us to this point. Throughout the course of this Bill the Government have consistently tried to adopt the most constructive approach possible, welcoming contributions from all sides to help us get this right. I am particularly grateful for the constructive comments to that effect from my noble friend Lord Lawson and the most reverend Primate. I thank them for those.

26 Nov 2013 : Column 1321

Our ambition has just been to get this right. Even before the Bill was introduced to Parliament, we asked the PCBS to conduct pre-legislative scrutiny. We considered seriously its recommendations both on the draft Bill and on banking conduct and standards more generally. Almost a third of the Bill before us today was either added or heavily amended in response to its recommendations. We have also showed ourselves to be open to considering ideas proposed by the Opposition, both in the Commons and in this House. Where we have been convinced by the points made, we have been willing to amend the Bill to reflect that. I think that the sentiment of the House has demonstrated that. That includes changes to the process of scrutiny of the ring-fencing proposals, introducing the single bank separation power, putting the so-called Haldane principles in the Bill and clarifying the regulator’s objectives.

4.30 pm

On the specific subject of the independent review of the ring-fence, the Government have never opposed the principle of a future review. How could we when the ring-fence itself was the product of an independent review, the ICB? Indeed, my right honourable friend the Chancellor told the PCBS in February this year that,

“we should have a review about whether the John Vickers reforms are working”.

Therefore we have been more sceptical of the need to legislate for this review. After all, the ICB itself needed no legislation to conduct its painstaking research and rigorous, independent analysis. However, having listened to the arguments made, in particular in this House by members of the PCBS, we have accepted the case for a statutory review of the ring-fence in the interests of certainty, to determine, as my noble friend just pointed out, whether it is as robust as I have implied we would like it to be.

Government Amendments 11 and 16 therefore provide for a review of the operation of the ring-fence, to be conducted by a panel of independent experts once the ring-fence has come into force. In drawing up these amendments, the Government have consulted closely with members of the PCBS. My right honourable friend the Chancellor and I met PCBS representatives to discuss their concerns. We have made our officials available to them to clarify any points of technical detail and have shared drafts of our amendments in advance—which, incidentally, explains why the drafting of the PCBS’s amendments so closely matches our own.

Following those discussions, the Government believe that our amendments address the substance of the PCBS’s concerns. To reflect that ring-fencing is a bold new step, the review’s central task will be to assess how well the ring-fence is working. Its conclusions are not constrained; it can make any recommendations it sees as appropriate. If it believes that the ring-fence is in need of improvement or repair, it will be able to make recommendations as to what changes in the legislation or rules are required to fix it. Therefore I can give my noble friend Lord Lawson the unequivocal commitment which I think he asked for—I will test whether I have got this right—that if the review concludes that the

26 Nov 2013 : Column 1322

ring-fence is irreparably broken, it will also have the scope to recommend an alternative approach altogether. That will, of course, include full separation.

The review will be conducted by a panel of experts who are independent of the Government, the Bank of England and regulators, as well as financially independent of the industry. Amendment 16 gives it a statutory power to obtain whatever information it believes is necessary to complete its work. Despite our approach in developing these amendments, it appears that some areas of difference remain, which are reflected in the various alternative amendments that have been tabled for debate today. I will address those issues now. I think it will go some way to helping us see how all this will be turned into something that makes coherent sense.

First, I will address the issue of the review panel membership. The Government do not believe that requiring pre-approval, as in Amendments 4, 5 and 13, is proportionate or appropriate. At present there is only one government appointment for which pre-approval is required: the appointment of the head of the Office for Budget Responsibility. That arrangement is supported by a strong body of academic literature that emphasises the essential need for credible and independent fiscal forecasts and statistics. No comparable evidence base exists in the case of an independent review of ring-fencing.

I also note that pre-approval of this sort is not required for the Governor of the Bank of England or the heads of the regulators, so is membership of a review really a more weighty responsibility than any of those posts? Finally, Sir John Vickers and the ICB were not subjected to any pre-approval requirement, yet their independence could hardly be questioned. As noble Lords will see from government Amendment 11, we have already accommodated the PCBS’s desire for a parliamentary role by requiring consultation with the chair of the Treasury Committee before review panel members are appointed. I hope that that is sufficient to satisfy any concerns. I therefore call on the noble Lords not to press those amendments.

On the scope of the review, Amendments 4 and 14 similarly specify recommendations that the review must consider. As the review will be able to make recommendations on whatever it sees as appropriate—including recommended alternatives such as full separation, or indeed other ideas if they are appropriate—I do not believe that this is necessary. Indeed, it could even cast doubt on whether the review had the right to consider matters not specified in the legislation, which would constrain it, contrary to the PCBS’s intentions. However, I believe that the Government’s amendment and the PCBS’s amendment are sufficiently close in substance that, on the basis of my clear commitment, this amendment should not be pressed.

Amendments 5 and 15 would expressly require the review to consider the case for full separation as an alternative to ring-fencing. While I believe the review should be free to recommend what it wishes, the Government do not, however, believe that it is appropriate to require it to consider a specific alternative, to privilege in legislation consideration of one possible conclusion of a review. Let me be very clear: if the review concludes that the ring-fence has failed beyond repair, it will be

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able to propose an alternative policy. That could be full separation, if the review believed that to be the best alternative course. It could, however, be other things too.

On both of these points, the Government’s amendments deliver the substantive objectives of those tabled by the PCBS. Indeed, as the review will also be able to consider the case for a ban on proprietary trading—on the model of the US Volcker rule—they also meet the objectives of Amendment 181, which we will debate later. Therefore, we can use this device to ensure that, if there are emerging issues with respect to proprietary trading, the review has the flexibility to make recommendations in that area too. I therefore hope that the noble Lords will not press their amendments.

I turn next to Amendment 12, which would shorten the period between ring-fencing coming into force and the review being conducted. On this point, the Government see the force of the arguments made by the Opposition, and agree that an earlier review than that proposed by the PCBS could be helpful. Provided that the regulators agree that a review after just two years is feasible, we would certainly be willing to consider this change. We are quite open-minded on the timing and I hope that the various parties will find a way of reaching an agreement on that.

Finally, I will address the question of whether the legislation should establish an independent review as a trigger for a move to full separation, as provided for by Amendments 5, 6, 15, 195 and 196. The Government continue to believe that a reserve provision for full separation is at best otiose, and at worst bad law. As I have already said, a review that concluded that the ring-fence was irreparably broken could recommend a shift to full separation instead. It could, however, recommend a shift to some other option too. If it did, and if the Government of the day accepted that recommendation, then a reserve provision for a full separation would not be appropriate in any case.

Imagine, however, that a review did propose full separation, and the Government of the day accepted that recommendation. Simply enacting a reserve provision would be a very poor way to implement such a significant change. It would allow for no detailed scrutiny, no debate, and no thorough testing of the arguments by Parliament. Yes, there would have to be a review, but the ICB proposals went through Second and Third Reading debates and extensive Committee scrutiny. None of that would be available to the outcome of this review. The Government, therefore, remain of the view that inserting a reserve provision now would be bad legislation, so I call on the noble Lords not to press their amendments.

Some have argued that a reserve provision of this sort could act as a deterrent, reinforcing the ring-fence by threatening dire consequences in the event that banks “game” the rules. Personally, I do not find this convincing. For a deterrent to work, consequences must follow from the bad behaviour that it is intended to deter. But the amendments before us today make no mention of gaming. Under these amendments, a review could conclude in favour of a switch to full separation without even having considered whether any gaming had taken place. How, then, is that a deterrent?

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I should also remind the House that we have already provided for a powerful deterrent against gaming, by giving the regulator the power to force a single group that has gamed the rules to separate. In my own experience as a banker, I can absolutely make clear that I was much more concerned about a regulator dealing with my own institution and threatening to make changes there if I did not behave than considering what my competitors were doing. The powerful tool is the direct, specific action against an individual institution. That is what the existing electrification we have included provides for. For me, that is the appropriate additional tool for the regulator. By contrast, even if the review did recommend full separation on the grounds that some firms had gamed the ring-fence, forcing separation on the entire sector—the innocent as well as the guilty—would be unjust and disproportionate. Indeed, if firms are at risk of being split up whether they game the ring-fence or not, they could conclude that they might as well game the rules, and cash in while they can. So, far from deterring gaming, a reserve provision might actually encourage it.

The Government have approached this issue in an open and constructive spirit. We have listened to the concerns that have been expressed in this House and elsewhere. The Government’s amendments meet the substance of those concerns and deliver an independent, expert review of the ring-fence, once it is in force. This will ensure that it remains fit for purpose.

Lord Eatwell: My Lords, I am very grateful to the Minister for that expert summary of a complex set of amendments. However, I hope that I may ask him one question before he sits down. He referred to our Amendment 12, which would shorten the period before a review takes place, and said that he was very sympathetic and receptive to that point. Will he therefore accept Amendment 12?

Lord Deighton: I think the right thing for us to do is to discuss it together with our colleagues from the PCBS. The noble Lord is, of course, entitled to take the amendment to a vote, but I have not yet had the chance to discuss it with PCBS colleagues. The Government have an open mind on the relevant period, so I would prefer a fuller discussion.

Lord Eatwell: Does the Minister mean that he is content to return to this issue at Third Reading?

Lord Deighton: That is what I meant to say.

Lord Eatwell: Thank you very much.

This is a complicated set of interrelated amendments. I congratulate the Government on their Amendments 11 and 16 in which they have moved towards the commission’s position in proposing an independent review. By the way, I did not find any evidence that new Section 142J had been deleted, which was the previous requirement that the PRA conducted the review. Is there supposed to be a PRA review and an independent review? Surely that is not the case. It is not an important point but we should not leave both of them on the statute book. As I say, I did not detect that new Section 142J had been deleted.

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We have a coherent package with the nested structure of the ring-fence, the electrification applied to individual groups and the electrification applied to the whole structure of banking—the so-called complete separation. That seems to me a coherent, rational structure which is supported by the review. Therefore, there will be the opportunity to take into account the detailed scrutiny by the ICB and the commission and consider which stage of this nested structure should be accepted. It seems to me that that coherence provides certainty as regards the way forward—not uncertainty, as the noble Lord, Lord Hodgson, suggested—because the review will not throw everything up in the air and lead to more years of parliamentary debate. We have been doing this for three years already, leaving the industry in a state of uncertainty. We should not throw it up in the air again but create a clear, rational structure that has been carefully put together by the ICB and the commission to provide for the review and separation.

The ordering of amendments before us makes our consideration a little awkward because we first have to consider my amendment on separation, Amendment 3 —which is identical to the commission’s amendment, Amendment 6—and then talk about the review. However, in the light of the care and consideration that the commission has given, I am content to fully support the commission’s position on the triumvirate of ring-fencing, group separation and full separation. I therefore wish to test the opinion of the House on Amendment 3.

4.44 pm

Division on Amendment 3

Contents 220; Not-Contents 229.

Amendment 3 disagreed.

Division No.  1


Adams of Craigielea, B.

Adonis, L.

Ahmed, L.

Allen of Kensington, L.

Allenby of Megiddo, V.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Bach, L.

Bakewell, B.

Barnett, L.

Bassam of Brighton, L. [Teller]

Beecham, L.

Bew, L.

Bhatia, L.

Bhattacharyya, L.

Bichard, L.

Billingham, B.

Blackstone, B.

Blood, B.

Borrie, L.

Bradley, L.

Bragg, L.

Brennan, L.

Brookman, L.

Browne of Belmont, L.

Browne of Ladyton, L.

Butler-Sloss, B.

Campbell-Savours, L.

Chandos, V.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clinton-Davis, L.

Cohen of Pimlico, B.

Collins of Highbury, L.

Corston, B.

Coussins, B.

Craigavon, V.

Crawley, B.

Davies of Coity, L.

Davies of Oldham, L.

Davies of Stamford, L.

Dean of Thornton-le-Fylde, B.

Deech, B.

Donaghy, B.

Donoughue, L.

Drake, B.

Drayson, L.

Dubs, L.

Eatwell, L.

26 Nov 2013 : Column 1326

Elder, L.

Erroll, E.

Evans of Parkside, L.

Evans of Temple Guiting, L.

Evans of Watford, L.

Falkland, V.

Farrington of Ribbleton, B.

Fellowes, L.

Filkin, L.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Fritchie, B.

Gale, B.

Gibson of Market Rasen, B.

Giddens, L.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grantchester, L.

Greenway, L.

Grenfell, L.

Grey-Thompson, B.

Griffiths of Burry Port, L.

Grocott, L.

Hannay of Chiswick, L.

Hanworth, V.

Hardie, L.

Harries of Pentregarth, L.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Hattersley, L.

Haughey, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Newport, L.

Howells of St Davids, B.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Kings Heath, L.

Hutton of Furness, L.

Irvine of Lairg, L.

Jay of Ewelme, L.

Jay of Paddington, B.

Jones of Whitchurch, B.

Jones, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kennedy of The Shaws, B.

Kidron, B.

Kilclooney, L.

Kingsmill, B.

Kinnock of Holyhead, B.

Kinnock, L.

Kirkhill, L.

Knight of Weymouth, L.

Laming, L.

Lawrence of Clarendon, B.

Layard, L.

Lea of Crondall, L.

Leitch, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

Listowel, E.

Low of Dalston, L.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

McKenzie of Luton, L.

Mar, C.

Martin of Springburn, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

May of Oxford, L.

Mendelsohn, L.

Mitchell, L.

Monks, L.

Moonie, L.

Morgan of Drefelin, B.

Morgan of Ely, B.

Morgan of Huyton, B.

Morgan, L.

Morris of Handsworth, L.

Murphy, B.

Noon, L.

O'Loan, B.

O'Neill of Bengarve, B.

O'Neill of Clackmannan, L.

Ouseley, L.

Palmer, L.

Pannick, L.

Parekh, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Patel, L.

Paul, L.

Pendry, L.

Pitkeathley, B.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prescott, L.

Prosser, B.

Puttnam, L.

Quin, B.

Quirk, L.

Radice, L.

Rea, L.

Rendell of Babergh, B.

Richard, L.

Rogers of Riverside, L.

Rooker, L.

Rosser, L.

Rowlands, L.

St John of Bletso, L.

Sawyer, L.

Scotland of Asthal, B.

Sherlock, B.

Simon, V.

Smith of Basildon, B.

Smith of Finsbury, L.

Smith of Leigh, L.

Soley, L.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Temple-Morris, L.

Thornton, B.

Tomlinson, L.

Tonge, B.

Touhig, L.

Triesman, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Wall of New Barnet, B.

26 Nov 2013 : Column 1327

Warnock, B.

Warwick of Undercliffe, B.

Watson of Invergowrie, L.

West of Spithead, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Wills, L.

Wood of Anfield, L.

Woolf, L.

Worthington, B.

Young of Norwood Green, L.


Addington, L.

Ahmad of Wimbledon, L.

Allan of Hallam, L.

Anelay of St Johns, B. [Teller]

Ashdown of Norton-sub-Hamdon, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Bakewell of Hardington Mandeville, B.

Balfe, L.

Barker, B.

Bates, L.

Bell, L.

Benjamin, B.

Black of Brentwood, L.

Bonham-Carter of Yarnbury, B.

Borwick, L.

Bourne of Aberystwyth, L.

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Brabazon of Tara, L.

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Brinton, B.

Brooke of Sutton Mandeville, L.

Brougham and Vaux, L.

Brown of Eaton-under-Heywood, L.

Browning, B.

Burnett, L.

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Butler of Brockwell, L.

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Campbell of Surbiton, B.

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Cavendish of Furness, L.

Chalker of Wallasey, B.

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Colville of Culross, V.

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Cope of Berkeley, L.

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Howe, E.

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4.58 pm

Amendment 4

Tabled by Lord Lawson of Blaby

4: Clause 4, page 17, line 15, at end insert—

“142VA Review of operation of legislation relating to ring-fencing

(1) The Treasury must, before the end of the initial period, appoint a panel of at least 5 persons (the review panel) to carry out a review of the operation of the legislation relating to ring-fencing.

(2) The legislation relating to ring-fencing means—

(a) Part 9B of FSMA 2000 (as inserted by section 4);

(b) orders and regulations made by the Treasury under that Part;

(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made by the FCA or the PRA;

(d) section 192JA of FSMA 2000 (as inserted by section 116);

(e) rules made by the FCA or the PRA under that section.

26 Nov 2013 : Column 1329

(3) The initial period is the period of 4 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.

(4) The members of the review panel must be persons—

(a) who appear to the Treasury to be independent of the PRA, the FCA, the Bank of England and the Treasury, and

(b) who do not appear to the Treasury to have any financial or other interests that could reasonably be regarded as affecting their suitability to serve as members of the review panel.

(5) In appointing the members of the review panel, the Treasury—

(a) must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review,

(b) must ensure that at least one of the members is a person appearing to the Treasury to have substantial experience in central banking or banking regulation at a senior level, and

(c) must obtain the consent of the chairman of the Economic Affairs Committee of the House of Lords and the chairman of the Treasury Committee of the House of Commons.

(6) The Treasury must appoint one of the members of the review panel to be chair of the panel.

(7) The review panel must, within a reasonable time after the end of the initial period, make a written report to the Treasury—

(a) setting out the results of the review,

(b) making such recommendations (if any) as the panel considers appropriate.

(8) The report must in particular include—

(a) an assessment of the extent to which the operation of the legislation relating to ring-fencing is facilitating the advancement by the PRA of the objective in section 2B(3)(c) and by the FCA of the continuity objective, and

(b) any recommendations which the panel considers appropriate for the making of further changes in the law with a view to better facilitating the advancement of those objectives; provided that such recommendations are consistent with the continued protection of core activities as defined in section 142B of FSMA 2000.

(9) The Treasury must—

(a) lay a copy of the report before Parliament, and

(b) publish the report in such manner as they think fit.

(10) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.”

Lord Lawson of Blaby: My Lords, in the light of the clear and explicit assurance given by the Minister that the independent review will be able to recommend full separation, I will not move the amendment.

Amendment 4 not moved.

Amendments 5 and 6 not moved.

Amendment 7

Moved by Lord Deighton

7: Clause 4, page 17, line 38, after “scheme” insert “all or”

Lord Deighton: My Lords, these amendments make a number of minor and technical amendments to the Bill. Amendments 7 and 8 amend new Section 142W, which gives the Treasury the power to require that ring-fenced banks make arrangements to ensure that

26 Nov 2013 : Column 1330

they cannot become liable for the pension liabilities of any non-ring-fenced entity, and that they minimise such potential liabilities if they cannot entirely prevent them arising. In the process of making these arrangements, the pension scheme trustees may wish to transfer assets or liabilities between schemes. These amendments clarify that the Treasury can make regulations enabling trustees or managers to transfer to another pension scheme all the pension liabilities arising in connection with persons’ service before the date on which ring-fencing comes into effect, together with all the scheme’s assets and not just part of those liabilities and assets.

The Government’s intention is to give banks and trustees flexibility in how they carry out any segregation or separation of pension schemes. If trustees judge that transferring all such liabilities or assets is in the best interests of scheme members, the legislation should not prevent that. The trustees have a duty to act in the best interests of scheme members throughout any restructuring that takes place to comply with ring-fencing. As an added safeguard, we are taking the power under the Bill to require the banks by regulation to do all they can to get clearance from the pensions regulator for their scheme restructuring.

Amendment 9 is a minor and technical amendment which clarifies the definition of a qualifying parent undertaking for the purposes of Part 9B of FiSMA, which deals with ring-fencing. A qualifying parent undertaking is defined in proposed new Section 142L(4), and this amendment ensures that this definition will apply wherever the term is used in Part 9B.

Amendment 173 is a minor and technical amendment which clarifies that the definition of regulator in Section 3A does not apply for the purposes of Sections 410A and 410B, which deal with the Treasury’s power to impose fees on the financial services industry to cover the costs of UK participation in certain international organisations. The amendment ensures that the definition of regulator that applies to these sections includes the Bank of England, rather than the definition given in Section 3A of FiSMA, which is limited to the FCA and the PRA.

Amendment 7 agreed.

Amendments 8 and 9

Moved by Lord Deighton

8: Clause 4, page 17, line 40, after “with” insert “all or”

9: Clause 4, page 22, line 6, at end insert—

“(4) Any reference to a qualifying parent undertaking is to be read in accordance with section 142L(4).””

Amendments 8 and 9 agreed.

Clause 5: Directors of ring-fenced bodies to be approved persons

Amendment 10

Moved by Lord Deighton

10: Clause 5, leave out Clause 5

26 Nov 2013 : Column 1331

Lord Deighton: My Lords, this amendment removes Clause 5 from the Bill. It will leave the regulators, the PRA and the FCA to decide among themselves which one of them designates board members of ring-fenced banks as senior managers and which directors should be designated. Clause 5 requires that the PRA on its own designates all directors of a ring-fenced bank as senior managers under the new senior managers regime. This clause was introduced originally before the senior managers regime was proposed. It now needs to be updated to reflect those changes.

The PRA is considering how to implement the PCBS’s recommendation of focusing the new senior managers regime to strengthen individual responsibility for actions of the firm. The PRA wants to develop the new regime in a way that improves its ability to bring enforcement action against individuals when things go wrong. To achieve this, the PRA thinks that it may be best to limit the number of board members it designates as senior managers, to narrow the scope of accountability. Those directors designated senior managers by the PRA will need to comply with conduct standards that will further the PRA’s safety and soundness objective.

Clause 5 would force the PRA to designate all board members of ring-fenced banks as senior managers. It prejudges the outcome of the regulators’ policy development and could result in the application of the senior managers regime to ring-fenced banks being less focused than for the rest of the sector. A focused regime should improve the ability of the PRA to take enforcement action against individual directors by making clearer which senior managers are responsible for different aspects of the firm’s business. The Government therefore agree with the PRA that Clause 5 should be removed.

Some directors not designated as senior managers by the PRA may be more appropriately designated by the FCA. The precise calibration should be left to the regulators, who will consult on this next year. The removal of the clause also brings the application of the senior managers regime to ring-fenced banks into line with how it will be applied outside the ring-fence. Outside the ring-fence the PRA or the FCA can designate directors as senior managers.

Moving on, the minor and technical amendments to Schedule 2 will help to ensure that the bail-in provisions can be used effectively and as intended. Following the introduction of these provisions in Committee, we have discussed them with various stakeholders and experts. These amendments are the result of those discussions.

First, we have specified that special bail-in provision can be made to release guarantees which are not provided directly by the bank, but by other companies in the banking group, in consequence of the application of the powers to make special bail-in provision in relation to the liabilities of the bank under resolution. This ensures that guarantee arrangements can be adjusted in line with any write-down or cancellation of a liability of a bank covered by that guarantee.

Secondly, the amendments will give the Bank of England the ability to make an agreement with the director or directors of a bank with regard to the preparation of the business reorganisation plan. The existing drafting already allows such an agreement between the Bank of

26 Nov 2013 : Column 1332

England and the bail-in administrator when appointed to prepare the plan. This is simply an extension of the arrangement to cover the case in which a director is appointed to perform that task.

Thirdly, we have clarified that where any person is acting under the direction of the Treasury for purposes related to state aid, that person is granted immunity from liability in damages save in relation to action in bad faith or in breach of the European Convention on Human Rights. There is a minor linguistic change to subsection (3) of new Section 48D to be inserted into the Banking Act.

Finally, the exercise of any of the stabilisation powers under Part 1 of the Banking Act 2009 to reduce a bank’s debt may lead to taxable loan relationship profits that would hinder its rescue. Consequently we will bring in measures in the next Finance Bill, with retrospective effect to this date, to relieve any such taxable profits that arise. I beg to move.

Amendment 10 agreed.

Amendment 11

Moved by Lord Deighton

11: After Clause 8, insert the following new Clause—

“Independent review of operation of legislation relating to ring-fencing

(1) The Treasury must, before the end of the initial period, appoint a panel of at least 5 persons (“the review panel”) to carry out a review of the operation of the legislation relating to ring-fencing.

(2) “The legislation relating to ring-fencing” means—

(a) Part 9B of FSMA 2000 (as inserted by section 4);

(b) orders and regulations made by the Treasury under that Part;

(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made by the FCA or the PRA;

(d) section 192JA of FSMA 2000 (as inserted by section 116);

(e) rules made by the FCA or the PRA under that section.

(3) The initial period is the period of 4 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.

(4) The members of the review panel must be persons—

(a) who appear to the Treasury to be independent of the PRA, the FCA, the Bank of England and the Treasury, and

(b) who do not appear to the Treasury to have any financial or other interests that could reasonably be regarded as affecting their suitability to serve as members of the review panel.

(5) In appointing the members of the review panel, the Treasury—

(a) must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review, and

(b) must ensure that at least one of the members is a person appearing to the Treasury to have substantial experience in central banking or banking regulation at a senior level.

(6) Before appointing the members of the review panel, the Treasury must consult the chairman of the Treasury Committee of the House of Commons.

(7) The reference in subsection (6) to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and

26 Nov 2013 : Column 1333

(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;

and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.

(8) The Treasury must appoint one of the members of the review panel to be the chair of the panel.

(9) The review panel must, within a reasonable time after the end of the initial period, make a written report to the Treasury—

(a) setting out the results of the review, and

(b) making such recommendations (if any) as the panel considers appropriate.

(10) The Treasury must—

(a) lay a copy of the report before Parliament, and

(b) publish the report in such manner as they think fit.

(11) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.”

Amendment 12 (to Amendment 11)

Tabled by Lord Eatwell

12: After Clause 8, line 13, leave out “4” and insert “2”

Lord Eatwell: My Lords, given the assurance given by the Minister that we will return to this matter at Third Reading, I beg to withdraw the amendment.

Amendment 12 (to Amendment 11) not moved.

Amendments 13 to 15 (to Amendment 11) not moved.

Amendment 11 agreed.

Amendment 16

Moved by Lord Deighton

16: After Clause 8, insert the following new Clause—

“Right to obtain documents and information

(1) A review panel appointed under section (Independent review of operation of legislation relating to ring-fencing)—

(a) has a right of access at any reasonable time to all such documents as the panel may reasonably require for the purposes of the review, and

(b) may require any person holding or accountable for any such document to provide such information and explanation are reasonably necessary for that purpose.

(2) An obligation imposed on a person as a result of the exercise of the powers conferred by subsection (1) is enforceable by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.”

Amendment 16 agreed.

Schedule 2: Bail-in stabilisation option

Amendments 17 to 20

Moved by Lord Deighton

17: Schedule 2, page 102, line 31, at end insert—

“(1A) “Special bail-in provision”, in relation to a bank, also includes any associated provision (see subsection (1B)) that the Bank of England may think it appropriate to make in consequence of any provision under subsection (1) that—

26 Nov 2013 : Column 1334

(a) is made in the same resolution instrument, or

(b) has been made in another resolution instrument in respect of the bank.

(1B) “Associated provision” means provision cancelling or modifying a contract under which a banking group company has a liability.”

18: Schedule 2, page 105, line 9, leave out “was a result of” and insert “resulted from”

19: Schedule 2, page 107, line 14, leave out “bail-in administrator” and insert “person required to draw up the business reorganisation plan”

20: Schedule 2, page 124, line 26, at end insert—

“(6) A direction under this section may specify circumstances in which the person given the direction is immune from liability in damages.

(7) Immunity by virtue of subsection (6) does not extend to action—

(a) in bad faith, or

(b) in contravention of section 6(1) of the Human Rights Act 1998.

(8) Where a direction under this section is given to a director of the institution, the director is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the institution) by virtue of any action in compliance with the direction.””

Amendments 17 to 20 agreed.

Amendment 21

Moved by Lord Eatwell

21: Before Clause 14, insert the following new Clause—

“Professional standards

After section 65 of FSMA 2000 insert—

“65A Professional standards

(1) The regulator will raise standards of professionalism in financial services by mandating a licensing regime based on training and competence.

(2) This licensing regime must—

(a) apply to all approved persons exercising controlled functions, regardless of financial sector;

(b) specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules;

(c) make provisions in connection with—

(i) the granting of a licence;

(ii) the refusal of a licence;

(iii) the withdrawal of a licence; and

(iv) the revalidation of a licensed person of a prescribed description whenever the appropriate regulator sees fit, either as a condition of the person continuing to hold a licence or of the person’s licence being restored;

(d) be evidenced by individuals holding an annual validation of competence;

(e) include specific provision for a Senior Persons Regime in relation to activities involving the exercise of a significant influence over a controlled function under section 59 of the Act.

(3) In section 59, for “authorised” substitute “licensed” throughout the section.””

Lord Eatwell: My Lords, Amendment 21, and Amendments 50 and 51 from the commissioners, refer to the professional standards to be required in the

26 Nov 2013 : Column 1335

banking industry—particularly to licensing bankers who have attained the required professional standards and, of course, not licensing those who have not. With respect to the conduct and skills of members of the banking industry, the Bill currently refers to “rules of conduct”. Amendments from the commissioners use the words “licensing regime”, but continuously refer to the adherence to rules.

The notion of a licence surely refers to some level of professional competence or professional standards. The Co-operative Bank may have obeyed the rules, but we now know it would have failed even the simplest test for professional competence. Rules may require the attainment of professional qualifications, but we cannot be sure and, as the Government regularly argue, certainty is important in this legislation. The clause in the Bill as drafted refers to rules of conduct. The commissioners’ amendment refers to,

“training in the effect and application of the rules of conduct”.

However, neither of them seem to convey the true context of professional standards.

As an academic, I am perhaps rather overly keen on examinations and the attainment of professional standards. Doctors have professional standards because they are required to pass examinations, undergo rigorous professional training and be thoroughly trained in ethical standards. Lawyers have professional standards because they are required to pass examinations, undergo rigorous professional training and be thoroughly trained in ethical standards. Of course, doctors and lawyers may, on occasion, not maintain the standards we would expect.

Lord Phillips of Sudbury: I hate to interrupt the noble Lord but I cannot resist saying that, unfortunately, the training of solicitors at this time does not involve rigorous ethical training. In fact, it involves little ethical training at all.

Lord Eatwell: I am sure that the noble Lord, as a distinguished solicitor, would attest to that, as indeed he has done. It seems to me that if members of the professions are required to pass examinations to show professional competence and to undertake rigorous training, bankers should do the same. That is what Amendment 21 seeks to achieve. For example, proposed new Section 65A(2)(b) says that the licensing regime must,

“specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules”.

Lord Spicer (Con): What is a minimum threshold of integrity?

Lord Eatwell: Being a “fit and proper person” would perhaps be appropriate. If the noble Lord is not aware of the phrase, it is the standard regulatory threshold which anybody operating in financial services must attain.

Amendment 21 seeks to capture the need for proper training, continuous development and the maintenance of proper professional standards via a licensing regime.

26 Nov 2013 : Column 1336

I have enormous sympathy with Amendments 50 and 51, tabled by the commissioners, but I am afraid that they do not capture the need for professional qualifications.

With respect to the government amendments in this group, they are mostly concerned with the correct definition of a bank. I am delighted to see that we now have a definition of a bank. It may be of interest to the House to know which banks are now included that were excluded in the past. Barclays Capital, Citigroup, Credit Suisse Securities and Goldman Sachs International were not included in the previous definition of a bank, but I am glad to say that they are now. I congratulate the Government on appropriately incorporating them. However, those government amendments stand slightly aside from the issue of professional standards addressed in Amendment 21 and in Amendments 50 and 51, tabled by the commissioners.

I suggest to your Lordships that this House asserting that the banking industry must maintain appropriate professional standards is the minimum that the public expect of us. I beg to move.

5.15 pm

The Archbishop of Canterbury: My Lords, Amendment 50 is in my name and those of the noble Lords, Lord Turnbull, Lord Lawson of Blaby and Lord McFall of Alcluith. It clarifies the scope of who the new senior persons regime will apply to, to ensure that it is rightly focused on material risk-takers, not on all bank employees. I will also speak to Amendments 51 and 60 which stand in my name and those of the noble Lords as colleagues on the commission. Amendment 51 sets out the duties relating to the application of the new licensing regime for the banking regime. Amendment 60 also deals with clarifications in the scope of the senior persons regime.

In Committee, on a day that I was unfortunately unable to attend owing to having to baptise someone, my noble friend Lord Turnbull welcomed many of the Government’s proposals relating to the functions of senior managers in banks, including ensuring that senior managers have a statement of responsibilities and the reversal of the burden of proof on whether a person is fit and proper to take up a senior management position. We are very grateful for that. However, my noble friend Lord Turnbull also raised a number of questions that I hope can be adequately answered today, although I realise that there is still a lot of reflection going on in this area.

At that stage, the Bill made no reference to the second tier of the two-tier system proposed by the Parliamentary Commission on Banking Standards: the licensing regime. As the Bill stands, it simply allows the regulator to,

“make rules about the conduct”,

of any “employee of the bank” if it,

“appears … to be necessary or expedient”.

As both Amendment 50 and Amendment 60 deal with our concerns around the application of these rules to any “employee of the bank”, let me turn to the issues that this language raises.