HC Deb 05 June 2000 vol 351 cc64-81

Lords amendment: No. 103, after clause 92, to insert the following new clause—Competition scrutiny—"Competition —(1) The Treasury may by order provide for—

  1. (a) regulating provisions, and
  2. (b) the practices of the competent authority in exercising its functions under this Part ("practices"),
to be kept under review,

(2) Provision made as a result of subsection (1) must require the person responsible for keeping regulating provisions and practices under review to consider—

  1. (a) whether any regulating provision or practice has a significantly adverse effect on competition; or
  2. (b) whether two or more regulating provisions or practices taken together have, or a particular combination of regulating provisions and practices has, such an effect.

(3) An order under this section may include provision corresponding to that made by any provision of Chapter III of Part X.

(4) Subsection (3) is not to be read as in any way restricting the power conferred by subsection (1).

(5) Subsections (6) to (8) apply for the purposes of provision made by or under this section.

(6) Regulating provisions or practices have a significantly adverse effect on competition if—

  1. (a) they have, or are intended or likely to have, that effect; or
  2. (b) the effect that they have, or are intended or likely to have, is to require or encourage behaviour which has, or is intended or likely to have, a significantly adverse: effect on competition.

(7) If regulating provisions or practices have, or are intended or likely to have, the effect of requiring or encouraging exploitation of the strength of a market position they are to be taken to have, or be intended or be likely to have, an adverse effect on competition.

(8) In determining whether any of the regulating provisions or practices have, or are intended or likely to have, a particular effect, it may be assumed that the persons to whom the provisions concerned are addressed will act in accordance with them.

(9) "Regulating provisions" means—

  1. (a) listing rules,
  2. (b) general guidance given by the competent authority in connection with its functions under this Part.")

Miss Melanie Johnson

I beg to move, That this House agrees with the Lords in the said amendment.

Mr. Deputy Speaker (Mr. Michael J. Martin)

With this we may discuss Lords amendments Nos. 181, 182 and 183 and the amendment thereto, 184 to 186, 192 to 210, 337, 338, 353 to 371, 376 to 390, 392, 442 and 660.

Miss Johnson

This group of amendments completes the changes that we made in the House on the competition scrutiny regime for the FSA in the light of the Cruickshank report. The changes made in another place apply to recognised bodies under part XVIII the same scrutiny arrangements as apply to the FSA, and give the Treasury a power under part VI to do likewise for the competent authority listing.

The headline change is that we have given the Competition Commission an important role in the competition scrutiny arrangements and reduced the scope for Ministers to take a different view from the competition authorities.

In another place, changes were made to three aspects of the FSA scrutiny arrangements. First, improvements were made to the definition of what the regime was intended to cover. The description of what is bad for competition was revised so as to take the wording away from that used in article 81 of the European treaty. Similar language is, of course, used in chapter I of part I of the Competition Act 1998.

However, the Competition Act and the treaty are concerned with the behaviour of commercial undertakings. Given that the provisions of part X are concerned with the application of competition controls to the effect of law and practices adopted in the exercise of statutory functions, that language is not appropriate here.

Amendment No. 183 therefore removes that provision and replaces it with one that refers to a significantly adverse effect on competition. The amendment will also allow the director general and the commission to look at rules and practices of the authority that require or encourage a person to exploit a strong market position.

Amendments Nos. 184, 185, 186, 194, 195, 197, 200, 202 and 204 make consequential changes. Amendments Nos. 181 and 182 make further drafting changes clarifying what the authority's regulatory provisions cover and what, therefore, the competition authorities should consider.

Secondly, in another place, the exclusion from the Competition Act 1998 was narrowed from things "contemplated" by the FSA's regulatory provisions to those "encouraged" by them. We said that we would narrow the exclusion in response to the Cruickshank report. That is achieved by amendments Nos. 205, 207 and 209.

Amendments Nos. 206, 208 and 210 remove the exclusion from the Competition Act for things done as a result of the practices of the authority. That is because only the regulating provisions, including guidance, are relevant here.

6.15 pm
Sir Nicholas Lyell

I have been following the Minister's argument closely. I think that she is telling us that, as a result of the amendments, the Office of Fair Trading will be able to supervise the FSA in that, if the authority introduces rules that are anti-competitive, the OFT would have some influence. Is that the case?

Miss Johnson

Yes, but it would be more technically correct to say that the Competition Commission, rather than the OFT, would be in that position.

The third point is that drafting amendments were made to clause 153 concerning the role of the Competition Commission to bring it into line with similar provisions under the Fair Trading Act 1973. Those were amendments Nos. 192, 193, 196, 198, 199, 201 and 203.

Amendment No. 103 inserts a new clause after clause 92, giving the Treasury a power to subject the regulating provisions of the competent authority—the listing rules and general guidance it produces—and its practices to a competition scrutiny regime. The Treasury proposes to use that power to create a competition scrutiny regime for the competent authority that is broadly similar to the regime for the FSA—in its role as financial services regulator—as provided for by chapter III of part X. The power will enable the Treasury to provide for exclusions from the provisions of the Competition Act analogous to those for which chapter III of part X makes provision.

Mr. Andrew Tyrie (Chichester)

The proposed new clause states: The Treasury may by order provide for. Will the Minister tell us why the wording is not "will by order"? In fact, the subsection provides for matters to be kept under review. Why has the Treasury been given discretion not to keep matters under review?

Miss Johnson

Because that is what we wanted the new clause to say—that is the obvious answer. The hon. Gentleman may wish that it said something different, but it says what we want it to say. That seems perfectly reasonable.

Sir Nicholas Lyell

The point of my earlier question is also relevant to that put by my hon. Friend the Member for Chichester (Mr. Tyrie). I have been much concerned by a questionnaire sent to me by an independent financial adviser—I have passed it to the Minister. It contains 171 detailed questions that have to be answered every month. That will bear heavily on all independent financial advisers, but especially heavily on small ones. Under the provisions that the Minister describes, would the Competition Commission be able to intervene to make representations to, or to impose controls on, the FSA in respect of such over-regulatory questionnaires?

Miss Johnson

Yes, it would be able to do so and that is one way in which the provision may work.

Before the interventions, I was discussing amendment No. 103. It will insert a new clause after clause 92 that will give the Treasury a power to subject the regulating provisions of the competent authority—that is to say the listing rules and general guidance that it produces—and its practices to a competition scrutiny regime. The Treasury proposes to use that power to create a competition scrutiny regime for the competent authority that is broadly similar to the regime for the authority in its role as financial services regulator.

Arrangements were made in part XVIII to align the competition scrutiny arrangements for recognised bodies under chapters II and III of part XVIII with those applying to the authority under chapter III of part X and to reflect the fact that it is possible that a recognised body may itself exploit the strength of its market position. The relevant amendments are amendments Nos. 337, 338 and 353 to 371, 377 to 390 and 392. They will broadly align the roles of the director general, the Competition Commission and the Treasury with those provided for in part X in respect of the FSA. The only significant difference, and complication in terms of the drafting, arises from the fact that scrutiny arrangements apply to applicants for recognition as well as to bodies that are already recognised. Obviously, that is not the case with the FSA.

Amendments Nos. 442 and 660 will introduce a new clause and new schedule respectively that will make provision for the protection of information obtained by the director general and the commission under their powers of competition scrutiny under the Bill. These provisions closely reflect the equivalent provisions on protection of confidential information in section 55 and schedule 11 of the Competition Act 1998. I ask hon. Members to agree to the changes made in another place that align the competition regime for recognised bodies and the competent authority with those that we introduced in this House for the FSA and that make minor improvements to the drafting of the Bill.

Sir Michael Spicer (West Worcestershire)

I have been thinking about the Economic Secretary's answer to the question of my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell). If burdens were imposed on a particular sector of the industry, he asked whether that would be a matter for Competition Commission referral to the Office of Fair Trading. She said that it would, but surely, if the burdens were imposed equally on everybody and it was just a matter of internal competition, it would not be a matter for referral. That is why our amendment to amendment No. 183, which distinguishes between internal and external competition, should apply. In the light of the answer to my right hon. and learned Friend's question, it appears that burdens will become anti-competitive only when they are seen to be externally anti-competitive in relation to other countries. Therefore, given the amendments that the Government have tabled, the Economic Secretary's answer was wrong.

Miss Johnson

The hon. Gentleman's interpretation of the question of the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) may be no better than mine. We can guess what the right hon. and learned Gentleman's intention was, but perhaps he will confirm that his point was that independent financial advisers, as small businesses, would be disadvantaged in some way. His point was about a level playing field between IFAs and other sectors of the financial services industry and that is different from the one that the hon. Member for West Worcestershire (Sir M. Spicer) has just raised.

Sir Nicholas Lyell

My question related to the comparative competitive position within the United Kingdom financial services industry. I was concerned that small businesses would find it even more difficult than larger ones to comply with what I regard as over-burdensome regulation. However, there is a second aspect to the issue. If there is over-burdensome regulation in the United Kingdom, it will drive business abroad and disadvantage consumers.

Miss Johnson

The right hon. and learned Gentleman is right in that regard. However, the hypothesis that he has described will not result from the Bill or from the work of the FSA. Among other things, the authority is bound to try to be proportionate in what it does. We have striven in drawing up the Bill and in our scrutiny of it to make sure that there is a balance between regulation and ensuring that competition is able to flourish. I believe that we have the balance right.

The Opposition's amendment to amendment No. 183 would insert a reference to prejudicing the competitive position of the United Kingdom into amendment No. 183, which defines what is meant by a significantly adverse effect on competition. The amendment is an old favourite. It first appeared in the Bill's Commons Committee stage—we debated it on 9 November 1999—and then regularly reappeared in one form or another in the later stages of the Bill's parliamentary process. The last time that such an amendment made an appearance was on 18 April this year on Report in another place. After the Opposition had heard what my noble Friend Lord McIntosh said, they said that they would examine his remarks and, in the light of them, consider whether to reintroduce the amendment on Third Reading in another place. Given that they did not do that, I thought that we might have seen the last of this matter, but it appears that we need to go over the ground one last time tonight.

It is hard to think what can be said that has not been said many times before about the relationship between competition and competitiveness, so I shall confine myself to repeating a few general remarks that I made on a previous occasion. I shall explain why the amendment would be undesirable.

Competition within the UK market and the UK's competitiveness are closely related, but they are nevertheless quite distinct. All regulation has an impact on competition. Regulation involves placing restrictions on who can perform a regulated activity and the way that they perform it. No one doubts that an appropriate level of regulation is necessary, but nor can they doubt that too much can be counter-productive. That is why we extended and improved the special competition scrutiny regime for financial services that was first provided for in the Financial Services Act 1986. If the FSA regulates in a way that has a significantly adverse effect on competition, the competition authorities can investigate and, ultimately, the FSA can be directed to change its rules or practices.

Sir Nicholas Lyell

Will the Economic Secretary clarify whether the competition authorities in this country can intervene if the FSA regulates in a way that damages our international competitiveness, or do the authorities have power only in relation to internal competitiveness?

Miss Johnson

The best way that I can answer that question is to come to the point that I was just about to make. It deals with the relationship between competition and international competitiveness—an issue that the right hon. and learned Gentleman and the hon. Member for West Worcestershire have raised.

If the FSA regulates in accordance with its objectives and principles and in a way that does not have a significantly adverse effect on competition, what is there for the competition authorities to examine? I certainly acknowledge that there is the separate issue of the competitive position of the UK, but the problem with the Opposition amendment is that it would introduce that issue into the competition scrutiny regime. The issue is whether the regulatory framework to be set up by the Bill, including its objective and principles, remains the right one in the light of developments in the UK and the world financial markets. That is a legitimate issue, but it is not appropriate for the competition scrutiny regime.

Ministers will keep the legislation under continual review and, as a part of that process, they will consider its impact on the UK's competitive position. They will be responsible for their policies to Parliament in the usual way. If appropriate, they could decide to commission a review of the impact of the regulatory regime on competition and the competitive position of the UK.

6.30 pm
Mr. Tyrie

The Minister is now telling the regulated community and the country that the Treasury may decide to call for a review if things start to go wrong. Why not give them an assurance that, in three years, there will be the review that almost everyone involved in the Bill has called for?

Miss Johnson

If the issue arose, we would have to consider carefully whether the competition authorities would be the right body to carry out such a review, as suggested by Opposition Members, including the hon. Gentleman.

Mr. Tyrie

That was not the point that I was making. The Minister is conceding that it is possible that the Government may be wrong on this issue. I am happy to concede that we may be wrong on the issue, but we are not content that the Government should decide whether to have a review in due course, if they feel like it. Surely they should be prepared to commit themselves to re-examining the issue in three years or so in a thorough review. If they do that, many of the regulatory community's concerns will be assuaged at a stroke. Will the Minister now give such an undertaking?

Miss Johnson

Competition policy is about preventing and removing unfair barriers that hinder firms from competing. The Bill's competition provisions are intended to stop the FSA adding to those barriers, except when that is an unavoidable price to be paid for achieving the necessary regulatory purpose. Competition is undoubtedly beneficial to consumers. However, international competitiveness involves the strength and ability of UK industry as a whole to compete and secure business in home and international markets.

Sir Michael Spicer

Will the Minister give way?

Miss Johnson

I would like to answer the question asked by the hon. Member for Chichester (Mr. Tyrie), but I should be happy to give way in a moment.

The regulator's key job is to ensure that regulation in the UK is set at the right level and strikes the right balance between costs and benefits, as I said earlier. To ensure that UK business remains internationally competitive, we must ensure that it keeps costs down and innovation up. In the long term, the best way of doing that is to ensure that it is exposed to vigorous competition at home. On the other hand, the most effective way of restricting competitiveness is to stifle competition at home.

I do not believe that there is anything between the Opposition and the Government in relation to the importance that we attach to the UK's international competitiveness. However, we differ on the question of who should carry out a review, if appropriate, of the impact of regulation on the UK's competitive position. As I said, the Opposition are arguing that the job should be done by the competition authorities, but we do not want that requirement in the Bill. Of course, Ministers are fully accountable to Parliament, so if in the light of events we decide that a competitiveness review is appropriate, we shall commission one. However, we do not want to hold a review just for the sake of it. I hope that Opposition Members who are arguing—rightly, in this case—that we do not want bureaucracy and red tape for the sake of it, will support the view that we should not commit ourselves to something that may prove to be unnecessary.

Sir Michael Spicer

The Minister argued that competitiveness concerned the whole industry and its relationship with industries abroad, so was different from competition at home. Does she accept that competition and competitiveness have a much greater link? For example, British Airways' defence against the charge that it had a quasi-monopoly on internal competition was that it had strong competition abroad. Therefore, the argument about competition partly concerns competitiveness, and the two are closely linked, even if they are separate in the Minister's mind. They should be treated as one entity, as, indeed, they are by the Competition Commission and the Office of Fair Trading in competition arguments.

Miss Johnson

I was arguing that competition and competitiveness are two distinct concepts. None the less, in many ways they are closely related. It is pretty hard to think of a credible example in which the long-term interests of competition and competitiveness point in opposite directions. Therefore, by ensuring that internal competition in the UK flourishes, we are addressing international competitiveness to a significant extent. Given the value of the financial services industry to the UK economy and its standing as a contributor, Treasury Ministers in any Government must, at all times, take due regard to ensure that our international competitive edge is maintained. This Government will certainly make sure that that is so in all that they do. I therefore commend most of the amendments, but I oppose the Opposition amendment and ask them not to press it.

Sir Michael Spicer

Once again, I shall declare an interest as president of the Association of Electricity Producers, in case there is an obscure read-across between what I am going to say about the amendments and the electricity industry.

Under the previous Conservative Administration, regulation involved moves towards competition. However, under the present Administration, regulation is, by and large, antithetical to competition. There are many examples of that in the FSA and the financial industry, as well as other industries. Indeed, that applies to every major regulator, such as the Rail Regulator, that is concerned with planning and integration, but not competition. The Post Office regulator is concerned about the degree of privatisation. The electricity regulator deals with fuel poverty, Oftel with the full coverage of telecommunications, Ofwat with the environment, and so on.

In all cases, especially that of the FSA, the regulatory regime is antithetical to competition. Therefore, the role of the Competition Commission, with which the amendments are concerned, together with the role of the Office of Fair Trading and the Director General of Fair Trading is of paramount importance in a discussion of a Labour regulatory Bill. The Lords amendments are therefore extremely important, as is our amendment. Of course, we welcome the sharpening of the competition rules and the restraints on the FSA's role with respect to competition, and that is why we agreed to amendment No. 82, and to clause 72, which certainly sharpened the competitive element in Parliament's instructions to the regulator.

As has been said already, page after page of the Bill shows that the regulator's basic rules and objectives are antithetical to competition and involve risk aversion. With other members of the Select Committee on the Treasury, some of whom are in the Chamber tonight, I spent a day at the FSA. I was struck by the enormous panoply of bureaucracy and expertise on intervention that was building up in the FSA that was against competition. I am sure members of the other party were also struck by that, but they were happy about it. A mass of economists were there to look in a detailed way at future risk taking by undertakings and to try to second-guess the market, presumably with the aim of introducing rules that are meant to be risk-aversive: anti-competitive. Unless one has risk, one will not have competition; they are two sides of the same coin.

Mr. Nigel Beard (Bexleyheath and Crayford)

The essential purpose of the legislation and the Financial Services Authority is to secure the integrity and probity of financial markets in Britain. Without such integrity and probity, immense damage will be done to the competitive position of a major piece of industry in Britain. Is that not the central purpose? Is not the legislation therefore a vital ingredient to our financial industry competing internationally?

Sir Michael Spicer

The City of London must have been doing something right over the past 20, 30 or 40 years because it happens to be the most successful financial entity in the entire world—bar none. The hon. Gentleman's argument for increased regulation, control and intervention would be stronger were it arguable that the City of London and financial services had not been so highly competitive as to become the largest industry in this country, far overtaking manufacturing, for instance, in the generation of exports and income earned from abroad—not to mention employment. In order to substantiate the case for massively greater intervention of the sort proposed, he must argue that something has been going badly wrong in competition, which manifestly it has not.

The question is—I suspect that it interests hon. Members on both sides of the House—how we maintain probity and regulation but at the same time ensure that such a vital element of our national economy not only prospers as it has but does so to a greater extent in future. That is why, if there is to be a great panoply of intervention, risk aversion and so-called protection of the consumer, we have at the very least the right to ask that competition safeguards are firmly entrenched in the Bill.

The Government are arguing that they have achieved such entrenchment on internal competition, but there is a further argument for, as we have been debating, a strong link between internal and external competition. They do not always work quite, as the Minister has said, in the same way. There seems, to Opposition Members at least, to be the need to bolster the requirements on various authorities, including the FSA, to have in mind external competition.

Although it might be argued that the provision should be inserted in a different part of the Bill, the Government are denying that there should be a countervailing force to all the intervention and further regulation to ensure probity and so on, in order that the panoply of regulatory authorities takes into account the essence of what has made the City of London and the financial services of this country: its high competitiveness.

The closer that I look at the FSA's powers, potential for intervention and proactive determination to intervene and regulate, the more I am concerned for the future of our financial services. That is why out amendment to Lords amendment No. 183, which would ensure that authorities bear in mind the external competitiveness of the industry, is of such essence and importance.

6.45 pm
Mr. Heathcoat-Amory

I am pleased to follow my hon. Friend the Member for West Worcestershire (Sir M. Spicer) because he put his finger on the importance of competition and competitiveness. They are two slightly different concepts. During the passage of the Bill, we have constantly argued that the Government should pay more attention to the vulnerability of the United Kingdom's financial services industry despite its very success, as described by my hon. Friend. He is right that it is Britain's biggest industry. It is a colossal foreign exchange earner. Indeed, without it, we would run a probably unsustainable persistent current account deficit. Precisely because of its success, we can easily become complacent and assume that people coming here to do business—to bank or to buy and sell securities—will go on doing so whatever the conditions. That is a dangerously short-sighted attitude.

We are lucky in this country because of our location; we are in the right time zone. We are lucky with the English language. We are lucky, too, to be comparatively lightly regulated, although that could easily change. We are therefore highly vulnerable to adverse changes.

I sometimes think that Labour believes that the City is rather like the Government. Governments, I am afraid, will always be with us because they have the compulsion that comes with having taxation at their disposal. Those trading here, however, cannot so demand revenue; they have to earn it. Therefore, the environment in which they trade is extremely important. The Government set that regulatory environment and we are worried that the regulatory itch is not under sufficient control—that there are not sufficient countervailing forces under the Bill to stop the inevitable tendency of any regulatory regime to grow and expand.

It is a natural feature of Governments that they will always look for more things to do. It has been said that fish swim, birds fly and regulators regulate. Governments will always find new things to regulate, and Governments come under political pressure to defend consumers, investigate and intervene in markets and to correct real or imaginary deficiencies.

The problems are evident; one need not look very far to find abandoned centres of markets and vigorous transactions. The art market is a good example. Paris used to be not just the biggest art market in Europe but, following the second world war, the biggest art market in the world. That all went because of bad and short-sighted regulation and an unfavourable tax regime. On the whole, the business came to London, but it is in the process of going to New York for much the same reasons. Owing to changes in value added tax and new levies on the resale of art, our market in art will probably go to the United States.

I do not want the same to happen to our capital market, but capital, by its very nature, is extremely mobile. Therefore, businesses that depend on very slim margins and small advantages could easily move to other centres that are hungry for such business—not just to the familiar big centres, such as Tokyo and New York, but to places such as Dublin, which is making a strong pitch for this country's business.

Frankfurt is a topical example. The London and Frankfurt stock exchanges are proposing to merge. The Government seem to have no view on how that is to be regulated, but I can tell them that which centre comes out on top from such a merger will depend very much on tax and regulatory differences. Already, unfortunately, the Government are refusing even to contemplate removing the 0.5 per cent. stamp duty on share transactions in London, which is not levied in Frankfurt. So there is already the clearest possible incentive for business to move to Frankfurt. The Government are being obstinate about that. The same problem might arise from a different regulatory regime. Remarkably, when that issue was raised in another place during discussion of the merger, Lord McIntosh of Haringey, speaking for the Government, said, in essence, that there was no problem. His words were: We are talking about two separate exchanges and, although there will need to be co-operation between the FSA and its German counterparts, there are separate regulatory jurisdictions.— [Official Report, House of Lords, 18 May 2000; Vol. 613, c. 373.] He was saying that there was to be no merger—that there would still be two exchanges and two regulatory jurisdictions. That will present problems, which might lead to the phenomenon of regulatory arbitrage, whereby firms and transactions migrate to a more favourable regulatory regime.

That is not an argument for no regulation: everyone agrees that all markets need rules and that those rules have to be simple, understood and properly enforced. However, if we get it wrong and over-regulate, we might find that the merged exchange centres on Germany, not the United Kingdom. For all those reasons, we want to elevate the possibility of examining and, if necessary, taking action in circumstances in which the United Kingdom finds itself at a disadvantage.

We are well aware that, under clause 2, the FSA already has to have regard to ‖ the desirability of maintaining the competitive position of the United Kingdom— which is all right, in so far as it goes. However, a requirement to "have regard to" is much weaker than having competition or competitiveness as an objective of the Bill. There are four regulatory objectives but they do not include competition or competitiveness matters, and that is a weakness. Therefore, we have taken the opportunity to suggest that the Director General of Fair Trading should keep such matters under review, which represents only a modest extension of the Government's proposals.

The relevant part of the Bill has already been amended extensively. The entire competition regime was only introduced on Report in the House of Commons; now, it is being added to and amended. It would not take much to insert a requirement that the Director General of Fair Trading should have regard not only to the possibility of market dominance and abuse, but to the possibility that rulings and statements by the authority might prejudice the competitive position of the United Kingdom. That is what our amendment would achieve.

Sir Nicholas Lyell

On a point of order, Mr. Deputy Speaker. I am sorry to appear so ignorant, but I am finding it extraordinarily difficult to link the amendments as published with the provisional list of amendments, because the amendments as published do not have any numbers. I do not know how anyone can link them, and I should be grateful for an explanation.

Mr. Deputy Speaker

There is only one official Opposition amendment under discussion: the amendment to Lords amendment No. 131—[Interruption.]—sorry, I am getting confused too. The Opposition's amendment is to Lords amendment No. 183. All the other amendments are Lords amendments, grouped for the purpose of debate. The amendment to which the Opposition have been referring will not be voted on at this stage, but, for the convenience of the House, it has been grouped for debate now. I hope that the right hon. and learned Gentleman finds that explanation clear.

Sir Nicholas Lyell

Further to that point of order, Mr. Deputy Speaker. I am genuinely grateful. I gather that one takes the document headed "Consideration of Lords amendments" and attempts to find one that has about it a number that appears in the provisional selection list, and then tries to learn what the amendment to that amendment is.

Mr. Deputy Speaker

The right hon. and learned Gentleman might recall that, rather than call all the numbers of the amendments in the group, I said that amendment No. 103 had grouped with it amendments that were laid out in the papers before us. Lords amendments are confusing, even to me, but I hope that I have been able to help.

Mr. Michael Fallon (Sevenoaks)

I might not be any the wiser, Mr. Deputy Speaker, but I certainly feel more intimidated. Nevertheless, I rise to support the amendment in the name of my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). That is not to say that I am criticising the new clause, which I think is healthy and probably useful, but I do criticise the drafting, which has a last-minute air about it.

As my hon. Friend the Member for Chichester (Mr. Tyrie) says, subsection (1) of the new clause that would be inserted by Lords amendment No. 103 appears to be almost doubly discretionary, in that the Treasury "may" produce the relevant orders and the individual tasked with carrying out the review "may" then keep the matter under review.

The Economic Secretary could have cut through the problem if she had been prepared to make the obligation mandatory. I can understand why she does not want to commit the Government to a particular review at particular intervals; that is a matter of dispute between the Opposition and the hon. Lady. However, I do not understand why she will not accept the word "shall" instead of "may", which would make mandatory the duty to keep the issue under review. I assume that the whole question will be kept under review anyway, so I am a little surprised that she will not amend the new clause—she could probably use a manuscript amendment to substitute "shall" for "may". If the problem she refers to is genuine, the solution is equally genuine and the whole process should be made mandatory.

My hon. Friend the Member for West Worcestershire (Sir M. Spicer) spoke about subsection (2) of the new clause. It is right to say that anyone's view of the effect of competition cannot be entirely insular. I do not understand why the Government want to restrict that view to a significantly adverse effect on competition domestically. We might hold a view on that matter, but our view might differ, or come to differ, from views held elsewhere in the world, or from views taken of competition as it emerges in other markets and financial centres. It is wrong to box ourselves in.

Even if the Economic Secretary will not accept our amendment, she could at least broaden the new clause's definition of "a significantly adverse effect". Why will she not make the provision cover competition nationally and internationally? The insertion of those or similar words, or of some reference to the international marketplace and the significance of our competitive position and our changing competitive relationship with other financial centres, would answer the point. I support the new clause, but it would be improved if our amendment were accepted.

7 pm

Mr. Tyrie

I want to have one more go at getting across to the Economic Secretary my point about competition and competitiveness. It will be my last go, both procedurally and for some time, but I feel I must make just one more attempt.

The Minister should forget competition altogether and think only about competitiveness. Now think about the phrase "economic performance", which means the same. There is a trade-off between too much regulation leading to lower economic performance and not enough regulation also leading to lower economic performance. There is probably only one level of regulation that will give an optimal level of economic performance.

All markets need regulation. Markets are created by a body of rules. Without rules there are no markets. There is not a free-for-all or a free-market jungle: there is almost always monopoly as a consequence—an insight that Hayek brought to bear. It is important to understand that.

The key question is, does the optimal level of economic performance coincide with the point at which there is zero regulatory failure? The answer is almost certainly "no". If that is so, there will have to be acceptance of some regulatory failure. Does the regime that the Bill will put in place allow for that? I fear that all the incentives built into the Bill as drafted will result in over-regulation. There is no provision in the objectives of the Bill to take account of economic performance. There will be huge pressure from the Treasury to avoid regulatory failure. There will also be pressure on the FSA from the public and the media whenever there is a regulatory failure. The Opposition amendment is one more attempt, in a specific part of the Bill, to insert the notion of economic performance under the guise of the word "competitiveness".

Mr. Beard

The hon. Gentleman's thesis is that there is a golden means of regulation that will enhance competitiveness, and that beyond that golden means there will be damaging over-regulation. This issue has been debated at almost every stage, from the Burns committee onwards. The hon. Gentleman makes out that this legislation is over-burdensome. It is always an assertion, and we have been given no facts or evidence to justify that position. Having just repeated the same charge, can he produce evidence that the Bill is over-regulatory? I have seen none.

Mr. Tyrie

With a Bill that is not yet on the statute book, it is obviously difficult to provide evidence that it will be over-regulatory. I can provide the hon. Gentleman with a wealth of evidence from those who have considered this issue and have given evidence to the Joint Committee, in newspaper articles and on many occasions stating—

Mr. Beard

indicated dissent.

Mr. Tyrie

The hon. Gentleman shakes his head in denial, but that evidence is on the record. I shall not delay the House further by reading it all out, but almost everyone has said the same thing, which is that the incentives on the FSA will result in over-regulation. My hon. Friend the Member for West Worcestershire (Sir M. Spicer) is on the Treasury Select Committee, and he has told us that he and most members of the Committee came away with the same impression. Wherever one goes, the same message comes across. I am afraid that the hon. Member for Bexleyheath and Crayford (Mr. Beard) has not picked it up yet. Don Cruickshank agrees: his interim report makes the point clearly.

The hon. Gentleman and his Front-Bench colleagues have not been able to dispute my argument, so we must decide how to counterbalance the urge to over-regulate. There are three possible routes. One is to incorporate a competitiveness objective in clause 2. I shall not go through all the arguments about that again, as we have debated it on many occasions, but the Government rejected it. A second route is to introduce thoroughgoing cost-benefit analysis of every regulation. The Government have set their face firmly against that, too. They have rejected all attempts to put such a provision in the Bill.

The third possibility is to do what the FSA has decided is the only way forward, which is to publish its own document and accept some regulatory failure, and to move to what it has described as a risk-based approach to regulation. That is all very well under the current FSA headed by a man who seems to be fairly enlightened. What happens when there is a change of leadership? What happens when great pressure builds up on the FSA after a prominent regulatory failure? The Government have not thought about that. They seem to have little grasp of the extent of the pressure that they and the FSA will be under in those circumstances if there is no statutory counterbalance in the Bill to the urge to over-regulate.

The amendment is a small, last attempt to put back part of what is required to counterbalance an over-regulatory Bill. That counterbalance is crucial. There is only one other respectable route for the Government to take, which is to accept that there should be a thoroughgoing review after a few years to see if they or we were right. Instead, they have said, "Thank you very much, but we don't want to commit ourselves to a review. We don't want to have to wash our dirty linen in public. We don't want to discover later on that we got it wrong." There is no commitment to a thoroughgoing review.

It is essential to have that counterbalance in the Bill. The Government have not provided it, and unless we get such a commitment I hope that we will divide the House on this amendment.

Sir Nicholas Lyell

I agree that we must divide the House on this amendment, although it will be a symbolic Division, not merely because the massed ranks of Government supporters will troop into the Lobby against us—we are used to that—but because all we can do at this stage is to table an amendment that highlights rather than solves the problem. The amendment that would solve the problem would be one that made international competitiveness or competitiveness generally one of the statutory objectives. That is not what the key amendment we shall vote on does.

The Government are in a complete muddle on this matter. If they are not in a muddle, they are deliberately obfuscating. They know what they ought to do, but as is so often the case they will not admit that they have got this wrong, and consequently they will not take steps to put it right. [Interruption.]

The Government have failed to put right up front in the objectives the fact that over-regulation damages not only internal competitiveness, but international competitiveness. [Interruption.] Why do I say that the Government are obfuscating? Because we know from what the Economic Secretary has told us and from what Howard Davies, when he introduced the FSA document "A new regulator for a new millennium" in January this year—

Mr. Deputy Speaker

Order. The House must come to order. Many conversations are being held in the Chamber. The right hon. and learned Gentleman is addressing the House.

Sir Nicholas Lyell

I appreciate that people are coming in hoping that there will be a vote fairly soon. It is always difficult to hold the House's attention under those circumstances.

The Economic Secretary said on this very matter of competition that the FSA was bound to try to be proportionate and to balance regulation and competition. I am quite sure that what she meant by competition when she said that was competitiveness—she would have been right if she meant that, which I think she did. She did not mean balanced regulation and competition in the technical senses of most of the activities of the competition authority.

In the document "A new regulator for a new millennium", which was published this January, the FSA said of itself that it must take into account the international mobility of much financial business and must avoid damaging the competitive position of the UK—which works to the advantage of consumers as well as markets. My right hon. and hon. Friends and I have been saying that until we are blue in the face. We are very glad to know that the Government recognise the truth of what we have said; what we criticise is their failure to do the right thing about it. Even at this late stage, the Government are not amending the Bill sensibly. Amending it sensibly would involve putting the point that we have made upfront, and making it clear to the FSA that one of its principal objectives was to do what it knows it is essential that it should do.

I support the amendment. It is a half measure, but at least—by means of the competition authority—it pushes the regulatory authorities slightly further in the right direction, although it shows a tendency to muddle their functions. I do not know what Sir Christopher Bellamy, the president of the Competition Commission, is to make of his role. I know Sir Christopher to be both a very experienced competition lawyer and an extremely skilful judge, recently returned from Luxembourg. I believe that he will do his wise best: I believe that when he finds that FSA activities are pushing us away from international competitiveness, he will be able to say so clearly enough to encourage the authority to try to mend its ways. That, however, is like trying to steer a horse and cart from behind without reins. It is much better to lead from the front, with the right objectives.

I support what our amendments seek to do, but, even at this eleven-and-a-halfth hour, I ask the Government to think again about the fundamental issue.

Mr. Flight

Yet again, the Government fail to accept that we live in a global world. Employers in London—in the financial services industry and the institutional marketplace—are international players: their headquarters are in Germany, America, Hong Kong and all over the place. We have taken a leaf out of the Chancellor's book when his party was in opposition, and been to see them all. They told us, as one might expect, "If this happens we will operate from New York, or from somewhere else." They run their businesses in a global fashion.

It is absurd to enact legislation, in 2000, that pretends that global competitiveness does not matter. It is the most important single factor.

Hitherto, the Government have refused to act on the ground that the Office of Fair Trading has not been equipped, for some reason, to keep an eye on global competitiveness. It can hardly be a difficult task to equip the OFT for the purpose. As it happens, the FSA is so equipped, and has done its best, but without any mandate.

It must come as no surprise that we have been banging on about this throughout the Bill's passage so far. Unless the necessary provision is written into the legislation, the poor chaps running the FSA, who must be given legal briefing, will not be able to give proper attention to it: they will have to override all sorts of other things. I warn the Government that, unless the problem is dealt with, huge mistakes will be made in crucial areas. I am thinking of market abuse, for instance. Business will go to other centres, and there will be a massive loss of jobs.

In the last 30 years, the City of London was revived—by, I might add, a Labour Government who introduced the right law when the equivalent of the withholding tax obtained. America, foolishly, had an interest equalisation tax; we allowed tax-free Euro-banking here, and hence got all the global dollar deposit business. What the Government did then led, almost by accident, to a recovery in London, because they got the fiscal regime right. If we do not get the competitive regulatory regime right now, down it will go again. I am very upset by the present Government's refusal to address this central issue.

7.15 pm
Miss Melanie Johnson

I have heard nothing new this evening, but I appreciate the reiteration by some hon. Members of points that they had already made. I particularly appreciated what was said by the hon. Member for Chichester (Mr. Tyrie). As my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) suggested, one reason why the hon. Gentleman's arguments did not make more progress was his lack of evidence in their favour.

Let us remind ourselves of what the Bill says. Opposition Members have made passing reference to its content.

Mr. Tyrie

Will the Minister give way?

Miss Johnson

I will, briefly.

Mr. Tyrie

May I read this into the record? I am concerned that there will inevitably be a tendency to err on the side of reducing the risks of the regulator at the expense of the regulated. The FSA and its chairman will probably be judged harshly if there is even modest wrongdoing that escapes their gaze. I could quote dozens of examples from people who have given clear evidence proving that the Minister is mistaken, but you, Mr. Deputy Speaker, would prevent me from doing so. It is nonsense to suggest that the Government have not been told about the position, and that there is no evidence; there is ample evidence.

Miss Johnson

I believe that the hon. Gentleman was reading from his own book. Let me return to the Bill, because it is the Bill with which we are concerned. Clause 2(3)(e) states—

Mr. Tyrie

Will the Minister give way?

Miss Johnson

No. I want to make some progress.

Mr. Tyrie


Miss Johnson

I will give way very briefly.

Mr. Tyrie

Although I was quoting from my book, I was quoting someone else's words. I was quoting the words of the chief executive of Britain's largest pension fund, Hermes, Alastair Ross Goobey.

Miss Johnson


Clause 2(3)(e) states—[Interruption.]

Mr. Deputy Speaker

Order. The Minister is addressing the House. Conversations should not be taking place.

Miss Johnson

As Opposition Members have raised a number of points, I assume that they will be interested in responses to those points.

Clause 2(3)(e) states that the FSA must have regard to the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom. That is a duty that the Bill places on the FSA. Opposition Members have given scant recognition to the force of the requirement, and to its exact wording.

We are not, as some Opposition Members have suggested, interested in increased regulation; we are interested in better regulation, which is very different. We are interested in maintaining the right balance between consumers and risk. I took the point made by a number of Opposition Members that it was a question of balance. We strongly agree that this is a question of balancing the various aspects of the issue, and securing regulation at the right point. However, the fact that it is a question of balance does not mean that anything in the Bill will damage competition; quite the reverse. We want to ensure that the balance continues to be right, but it needs to be right for consumers as well.

I hesitate to mention the words "pensions mis-selling" here, because Opposition Members seem to have forgotten that it existed, but there was pensions mis-selling, and there have been significant failures in regulatory regimes. The issues must be addressed genuinely, and they are being addressed. However, there have also been changes in the way in which financial services business is done. For example, many organisations that used to provide just one aspect of financial services now provide several, including banking insurance. The existence of a single regulator will provide the right flexibility, and a single reference point reflecting the changed nature of financial services in the United Kingdom.

If we do not make these changes, we shall be in danger of doing what Opposition Members say they want to avoid. We shall be in danger of slipping behind in the international competitiveness stakes, and failing to move ahead in a way that will ensure our continuing leadership in financial services in what the hon. Member for Arundel and South Downs (Mr. Flight) rightly described as a global economy and a global marketplace. I would have thought that there was ample evidence. If I had more time, I would be happy to spend a long time citing the many pieces of evidence that the Government are at the forefront of recognising the fact that we are in a global economy.

It is important that we get the balance right. A bad balance is poor ground to grow a flourishing financial services industry. The document entitled, "A new regulator for the new millennium", to which the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) referred, does indeed strive to carry that forward in terms of the practicalities that the FSA will face in conducting its regulations. That document has been extremely well received. It is an indication that the FSA is getting the balance right and is working in the way in which the Bill anticipates it will. The Bill puts in place an improved and extended competition scrutiny regime that ensures that there are external checks to ensure that the FSA gets that balance right. I commend the amendments, with the exception of the one tabled by the Opposition, to the House.

Lords amendment agreed to.

Lords amendments Nos. 104 to 126 agreed to.

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