HC Deb 11 May 1995 vol 259 cc872-5
5. Mr. Corbett

To ask the Chancellor of the Exchequer what new proposals he is considering on banking and financial supervision. [22229]

Mr. Kenneth Clarke

Banking and financial supervision is a large subject. Therefore, with respect, this is a rather wide question. At any one time a variety of issues will be under consideration. For example, my hon. Friend the Minister of State announced at the beginning of the year the outcome of our review of the Building Societies Act 1986 and, more recently, the Treasury released a consultation paper on open-ended investment companies with proposals for legislation to allow their formation in the United Kingdom.

Mr. Corbett

I thank the Chancellor for that answer. Does he accept that, following the rip-off of people on modest incomes who were persuaded to buy private pensions and mortgage-linked endowment policies, there is a need for more effective regulation of banking and financial services; or will those people simply become more casualties of the Government's indifference?

Mr. Clarke

The response to the problems that have arisen with personal pensions shows how successful we are in having the right regulatory regime in place, and how responsive the authorities have been in making sure that individuals who might have suffered loss as a result of mis-selling are considered. We are going through a huge process of identifying any persons who may have experienced mis-selling of personal pensions and of making sure that those responsible put such people in the position in which they should be. Similarly, we already cover endowment-based mortgages under the Financial Services Act 1986.

Strong arrangements are in place to provide consumer protection. It is not the right response to demand yet another quango and more Acts of Parliament—particularly when the present arrangements in this country work so much better than anything almost anywhere in the world.

Mr. Budgen

As banking is affected by monetary policy, I congratulate my right hon. and learned Friend on not having increased interest rates, for two reasons. At long last, he understands the advantages of floating exchange rates, and he demonstrates that, under our constitution, the Chancellor of the Exchequer must be responsible for monetary policy and that it cannot be delegated to an independent Bank of England or, worst of all, to an independent central European bank.

Mr. Clarke

My hon. Friend and I have always agreed on rather more of economic policy than he ever cares to concede. I do know that one has either a floating exchange rate or a fixed exchange rate, and that one should not have a target exchange rate when it is floating. The exchange rate is something that one takes into account when setting monetary policy. My hon. Friend gave an impeccable statement of the constitutional position when he said that the Chancellor is responsible for monetary policy in this country but acts on the advice of the Governor of the Bank of England. I have made matters more open than ever before, by allowing the Bank of England to publish an unedited inflation report and by publishing the minutes of meetings after six weeks, to give it more credibility with people, such as my hon. Friend and myself, who want to see such decisions taken on economic grounds.

I congratulate my hon. Friend on yet again giving an opinion one way or the other about last week's decision. The hon. Member for Dunfermline, East (Mr. Brown) had one chance to do so, but he went on about something that I have already forgotten. The hon. Gentleman failed absolutely to be the first member of the Labour party to say whether he would have increased interest rates, taken them down or done anything at all last Friday.

Rev. Martin Smyth

While I welcome the Chancellor's statement that he does not want any more quangos, does he agree that it is time that the Treasury relaxed some restrictions on friendly societies, to allow them to give more benefits to their members, whom they have been looking after well for years?

Mr. Clarke

That matter has been reviewed from time to time and we consider representations on the subject. We think that there is some scope for change.

Mr. Brazier

Surely the most important purpose of banking supervision is to keep an eye on the overall level of lending and the money supply. Will my right hon. and learned Friend take it from me that many on this side of the House believe that when broad money is in the lower half of our range, 80 per cent. of bank lending to small businesses is secured on domestic property and there is still strong anecdotal evidence of tightness of credit in the economy, my right hon. and learned Friend is absolutely right to resist pressure to raise interest rates?

Mr. Clarke

My hon. Friend is right. Broad money as well as narrow money, which has remained above its target range for some time, are two of the items that one considers. I repeat my congratulations to my hon. Friend. He gave an opinion that may provoke a response, but the entire Labour party is sitting there like a stuffed duck because Labour Members do not know whether they are meant to get up and say that they agree or do not agree with last Friday, because the man in front of them has not yet made up his mind. He is incapable of making up his mind on any aspect of economic policy.

Mr. Darling

I ask the Chancellor to return to the original question. Does he accept that pensions being mis-sold or people being given inappropriate advice about endowment mortgages is due in no small part to the fact that we live under a regime of self-regulation, where the public interest takes second place to the trade interest? Does he accept that public confidence in the industry will not be restored until the nonsense of self-regulation is brought to an end?

Mr. Clarke

With the greatest respect, I do not agree that that case is made out at all. The statutory framework that we have is set under the Financial Service Act 1986. There is no evidence that making the whole regime statutory would improve a system in which the self-regulatory bodies contain a large number of people with detailed experience of how the industry works.

Of course, we have to look at the serious problems that lie behind the mis-selling of so many personal pensions. I am confident that the new Personal Investment Authority will improve matters and exercise tighter supervision. I am delighted that more than 5,000 firms have applied to join that authority, and I am sure they will strive to obtain higher standards in future.

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