HC Deb 14 February 1979 vol 962 cc1267-74

10.1 p.m.

Mr. Wrigglesworth

The Bill is a longoverdue measure. I have greatly welcomed the opportunity of being able to help its passage through the House. The Bill has been long overdue because there was a need to reassure public opinion about the supervision of banking after the collapse in the early part of the 1970s. The Bill helps to reduce the risk of abuses taking place. It will also reduce the risk of there being confusion, which has undoubtedly existed under the present rather complicated system of banking supervision.

I make only one point to the Minister. Although we have said in the Bill that the deposit protection board should make an annual report about its activities, we have not, as I understand it, insisted that the Bank of England shall make a report upon its activities and its responsibilities as laid down in the Bill. I hope that that will not mean that the Bank of England will not report upon the new responsibilities that it will have under the Bill. They are quite substantial responsibilities.

I hope that through the Bank of England Quarterly Bulletin we shall hear, on an ongoing basis, how the responsibilities are being discharged, and that in the Bank of England's annual report each year there will be a substantial report on the supervisory functions, how they are developing, how the Bank is carrying them out and any comments that the Bank cares to make, so that the Select Committee on Nationalised Industries can look at that area of the Bank's activities and, indeed, so that hon. Members may raise matters arising from the Bill in this Chamber.

I hope that the Minister will take that point on board. In the past, the Bank of England has been rather secretive—I have criticised it for this—about some of its activities. It would be unfortunate if an area as important as this were not given an airing by the Bank at least in its annual report. I hope that it will be more often than that.

I hope that the Minister will discuss this with the Governor of the Bank of England and ensure that an annual report of the Bank's discharge of its duties under the Bill is made.

10.4 p.m.

Mr. Moate

It seems to me that the House is tonight asked to give a Third Reading to a Bill of quite considerable significance. The Bill is a considerable milestone in the history of banking. It is certainly welcome to me in that it sets up what appears to be a very sensible framework of regulation for all the banks in this country and for other deposit-taking institutions.

The Bill is also significant because of the political background to it. It is a remarkable achievement, in view of the controversial political arguments that have raged about banking and the threats of banking nationalisation and the like which have emanated from certain quarters of this House, that the House of Commons is tonight—in an atmosphere of co-operation and in a constructive approach—putting on the statute book a moderate and sensible piece of legislation.

One hopes that this Bill, when it becomes an Act, will remain on the statute book in its present form and be successful for many years to come. I believe that it is a recognition by the Government of the effectiveness of our banking institutions. It is also a recognition by the Government of the outstanding role of the Bank of England.

One of the reasons why to me the Bill makes a great deal of sense is the role that it gives to the Bank of England, which has the role of paternalistic supervision over the banking sector. That is what makes the Bill sensible and acceptable. Indeed, very little is understood in the country about the great skill exercised by the Bank of England during the period of the lifeboat operation. I suspect that in times to come that will be seen as probably one of the most skilful operations in the history of banking. It was conducted with a great deal of sensitivity at little or no cost to the taxpayer, yet at the same time it preserved the competitiveness of the secondary banks of this country. That was a remarkable achievement, and it is right that it should be implicity recognised by the role given to the Bank of England in future in the supervision of all the deposit-taking and financial operations in this country.

There is one aspect of the Bill that gives me a little concern. I was not privileged to take part in the Committee proceedings, and perhaps my concern has already been dealt with. From my reading of the debates that have taken place, it seems to me that it is still probable that some advantage is likely to be given to foreign banks with branches operating in this country. It seems to me that those banks are likely to satisfy less stringent criteria, which might have to be accepted by the Bank of England because of our international commitments, than banking operations in this country.

It is only when Bills such as this have operated for some time that we really know whether they are totally effective. It is still possible that in years to come we shall find some rather dubious branches of some dubious foreign banks springing up in some remote part of the country, purporting to be banks yet securing the protection of the deposit fund and thereby having an unfair competitive edge over British banks. I believe that that loophole still exists.

Part of the parentage of the Bill comes from the EEC directive on banking. At this stage I should emphasise that, although I am no fervent supporter of the EEC, I believe it to be very desirable indeed that the greatest uniformity of banking rules should be adopted throughout the Community. We want to see the maximum of fair competition between our financial institutions and the least amount of Government interference in the movement of capital and the freedom of banking competition within the Community.

It is that desire for fair competition which causes me concern about the deposit protection scheme. In that respect, I believe that the British banks will be burdened with a levy or cost which foreign banks operating in other parts of the EEC will not be burdened with.

To that extent, British banks are unfairly burdened and therefore we are diminishing their competitiveness, and not enhancing it. We are going much further than the EEC directive requires and even perhaps operating against the spirit of it. Nevertheless, the maximum competition is what we should be seeking. If this harmonises laws on banking throughout the Community, I think that makes it a great deal more sense.

During our earlier proceedings the Minister of State made a very helpful concession towards small businesses. Despite that, protection schemes and licensing schemes of this kind are always in danger of becoming a charter for the establishment to protect existing institutions. In banking, as in all other areas, we must ensure that new organisations and innovators can take advantage of a situation and can create new competition and bring in new ideas.

What we must be certain of when we license and control is that we are not simply protecting the existing institutions and preventing new organisations and companies from introducing new services to the consumer. I hope that the Bill will not become a charter for the establishment and that we shall continue to see increased competition in the banking world. I hope also that this fairly moderate and sensible legislation before us will do that—act as a framework for sensible control without interfering with or dampening down much-needed competition.

10.12 p.m.

Mr. Brooke

The infectious amity that has surrounded this Bill has persisted this evening through the Report stage and Third Reading. My intervention will be extremely brief. Rather in the manner of the dodo in "Alice", members of the two Front Benches have, perfectly rightly, thanked and congratulated each other for their contributions to the Bill. Everything that I have read suggests that those comments are wholly justified.

Since a large number of my constituents will be among those institutions partly affected by this Bill, I should like to say a word of gratitude to those who worked on this Bill, making it a very much better Bill than it was when it first came before the House. I remember at the time of Second Reading a degree of disquiet about the advantages which appeared to be given to foreign banks, particularly in the context of their nomenclature. While I have not followed the progress of the Bill in Committee on a daily basis, as perhaps I followed the Test series in Australia, I am nevertheless extremely glad—and it obviously arose through cross-voting—that good sense persisted on the particular clause and amendment which affected that decision. It seemed to me to be the House of Commons at its best when it reached that conclusion.

I am genuinely grateful on behalf of my constituents in the banking community for all the work that has been done on the Bill, not only by the Minister but by all those concerned.

10.14 p.m.

Mr. John Moore

It seems to me that the mood of the House suggests that the lengthy Third Reading speech that I prepared would not be greeted with great applause by the House. Therefore, I shall put it to one side. The words of my hon. Friend the Member for City of London and Westminster, South (Mr. Brooke), and the sense of balance that he has about the things that are more important to him, will reflect very well for him at the polls. The cricketing scores are clearly a great deal more interesting to most sane and rational people than our debates. I shall just take one or two moments to touch on a few points which, though not carping, are small points of criticism that still linger in one's mind from our lengthy deliberations.

First, I do not think that any of us, whatever our view, can be satisfied about the character of the foreign banking institutions that are not recognised banks, or would not be under the Bill. None of us is terribly happy with this arrangement, and I hope that in another place we can come to some better form of words. We have managed, though we have not seen the amendments yet, to see stockbrokers, solicitors, Lloyd's and all the other small organisations of great importance brought in, and I would have thought that investment banking could equally be reconsidered at some stage.

Another small point is that I do not think any of us—and I am sure the Minister of State will allow me to include him—would be happy at the way in which in Committee we were not able to obtain data to allow us to assess the number of depositors in institutions throughout the land who have deposits in excess of £10,000. This was a crucial element in terms of the protection scheme. All of us, on both sides of the Committee, felt a little lacking in the absence of clear conclusive data.

Another point which I would have made at much greater length had there been time is one that we discussed at some length in Committee—the way in which the Bank of England is able to act under the catch-all phrase of "the public interest". Many of us are rather uncomfortable about that. We must watch out for such catch-all phrases in Government legislation in future.

I am delighted about the innate assumption throughout our debates that because it was the Bank of England that was being asked to do the job of supervisory agent we could all rest a little easier. That sense of trust in that institution which permeated the Committee debates is an important and crucial feature. I was glad that my hon. Friend the Member for Faversham (Mr. Moate) also brought out the role of the Bank of England in the lifeboat crisis.

On a personal note, I thank the Minister of State and the Treasury. We hear a lot of criticism of the way in which the House of Commons conducts its duties in scrutinising legislation. This was an example of the House of Commons at its best, due to a great extent to the courtesy and kindness of the Minister of State. Beyond that, whether by accident or inadvertence, at some stage during our debates members of the Committee were each given a splendid set of cyclostyled notes from the Treasury. These notes analysed clause by clause and line by line certain parts of the Bill and showed serious and responsible thinking about the legislation.

I should like such sensible additions to be given to all those who seek to improve legislation in Committee. Obviously it puts many of us at a disadvantage if we have to rely on outside sources of information. These notes made our Committee's deliberations more sensible, and to that extent we would like to see this practice carried on with other legislation.

I thank my hon. Friend the Member for Hitchin (Mr. Stewart). It is an odd feeling for me to stand here at the Dispatch Box for the first time, so I thank my hon. Friend for his help and for the skilful way in which he led the Opposition in a very detailed and technical piece of legislation. We all respect him for the work he did.

10.18 p.m.

Mr. Denzil Davies

I should like to thank Conservative Members, especially the hon. Members for Hitchin (Mr. Stewart) and Croydon, Central (Mr. Moore), for the very reasonable but penetrating way in which they have scrutinised the Bill. As a result of their efforts, the Bill is better, and I pay tribute to them.

I shall go over the main points of the Bill briefly. It establishes a deposit protection fund to protect people's deposits in banks. This is an innovation in this country and I believe that we shall see it developing in other countries. The hon. Member for Faversham (Mr. Moate) said that European countries did not have such a scheme, but European countries are beginning to show an interest—West Germany is already looking at this. I think that such a scheme will develop in the EEC, and it already exists to some extent in the United States. For the first time we are providing statutory protection for people up to a certain limit if their deposits are in banks or in licensed deposit-taking institutions.

The Bill also establishes the statutory framework for supervision to be carried out by the Bank of England. I believe that the old system of relying upon administrative controls is not right in the middle of the twentieth century. We needed a statutory backing. Once one starts doing that, there are difficulties of drafting because one does not want to become over-restrictive. That is why we have given discretion to the Bank of England, but we have also provided statutory backing.

My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) asked that the Bank of England should be required to lay a report before the House. Clause 4 provides for a report from the Bank of England including not only the list of institutions that it has recognised and given licences to but a general synopsis on the way it operates its supervisory functions. For constitutional reasons, that report will be laid before the House by the Chancellor of the Exchequer and questions can be asked about it. It is important that accountability should come back to the House, at least for the general system of supervision

The hon. Member for Faversham touched on an important point when he said that the system must not become too establishment-oriented. Obviously we need competition in banking—but perhaps not too much competition. There is a danger in too much competition, but there is also a danger in ossification and the establishment shutting others out. I do not suggest that that is likely to happen with the Bank of England operating the system, but we have provided a system of appeal from the decisions of the Bank in relation to recognition and licensing. It is important to have a final court of appeal so that newcomers do not think that the establishment is ganging up on them.

We also have in the Bill the controversial banking names provision. I appreciate the difficulties that that provision will cause. The trouble is that, as with all other legislation, we are not starting from scratch and we have a fairly open society for banking. In a smaller country it might be possible to say that any institution taking deposits could call itself a bank. But we operate in a worldwide environment and we have to start from the existing two-tier system. I appreciate the difficulties, but I do not believe that we had any alternative but to draw a distinction between banks and licensed deposit-taking institutions.

Those are the main points of the Bill. It is the first piece of banking legislation that we have had. We do not want to make legislation, in this area or in any other, too restrictive, but in the modern world we must have a legislative framework. We have tried to provide it sensibly and moderately.

Question put and agreed to.

Bill accordingly read the Third time and passed.