Response to statement on the Vickers Commission - Ed Balls & Chuka Umunna

19 December 2011

ed ballsEd Balls MP, Labour’s Shadow Chancellor, response in the House of Commons to the Chancellor's statement on the Vickers Commission on banking reform.

- Check against delivery -

Mr Speaker, let me start by thanking the Chancellor of the Exchequer for advance notice of his intention to give a statement, but – as with the autumn statement – it is disappointing that this statement and this 75 page document were only available 8 minutes in advance. Do the Chancellor and Business Secretary have something to hide?

But let me thank him for at least agreeing to the request we made back in September:  to provide, by end of this year, an implementation plan for the Vickers Commission recommendations.

Mr Speaker, it is vital that the Government now implements these important banking reforms, without backsliding, foot dragging or watering them down.

So will the Chancellor now agree to our second request - also made in September - and ask the Vickers commission to come back in 12 months time and publish an independent report on progress so far.

We on this side of the House are determined to play our part in implementing these proposals in - as far as possible - a cross-party spirit.

Taxpayers, customers and businesses - angry at banking recklessness which forced a multi-billion pound bailout – will expect nothing less.

Mr Speaker, we on this side of the House have apologised for the part the last government played in this global regulatory failure.
In that same cross-party spirit, Mr Speaker, perhaps the Chancellor of the Exchequer would like to take this opportunity to apologise too for the role his party played in Opposition and he played as Shadow Chancellor, in complaining of “too much regulation” and, in the case of the then Leader of the Opposition, calling – as late as the spring of 2008 – for “lower taxes and less regulation” of the City?

We all made mistakes and perhaps this Chancellor – who opposed financial regulation legislation, opposed the nationalisation of Northern Rock, RBS and Lloyds, not to mention Bank of England independence – should show a little more humility too. And if he does, Mr Speaker, I will commend him for that.

Mr Speaker, let me join the Chancellor in commending the excellent work of the Pre-Legislative Scrutiny (PLS) Committee on the draft Financial Regulation Bill, a report which builds on the important recommendations of the Treasury Select Committee.

We will study these reports in detail and approach the Bill and the Chancellor’s reforms to the machinery of financial regulation with an open mind.

But, like the PLS and the Select Committee, we too are concerned that his reforms could make decision-making both more complicated and less transparent in future.

There is a serious and still unanswered question as to whether there is sufficient accountability to match the massive new powers the Chancellor plans to delegate to the Governor of the Bank of England.

And the Chancellor’s so-called simplification actually increases the number of deputy Governors at the Bank of England from two to three.

Our fear is that the Chancellor is replacing a tripartite system with a de facto quartet system: Treasury, the MPC, the FPC and the PRA - with the Financial Conduct Authority semi-detached on the outside.

And given this greater complexity, can the Chancellor tell the House why he has still not published the promised Memorandum of Understanding between the Treasury and the different Bank agencies?

Mr Speaker, I do hope it is obvious to the Chancellor that the Memorandum of Understanding must specify that, in any crisis, the Chancellor must always, and alongside that of the Governor, also hear the direct advice of all three Deputy Governors, most importantly the Deputy who is also the chief executive of the independent regulator responsible for ensuring the stability of the banking system.

In my view, that is essential if this new, more complex quartet system of financial regulation is to work in an effective and transparent way.
Mr Speaker, in responding to the Vickers Commission, we set out three tests which will guide our view of banking reform.

I will take them in turn.

First, to protect taxpayers, we support the commission’s radical reforms on ring-fencing and regulatory standards.

But rather than delay, could the Chancellor explain why he is not using the forthcoming financial regulation bill to make a start?

Can he confirm that it is his intention to implement in full the Vickers recommendations on depositor preference?   

And on the requirement on the biggest UK global banks to have the ability to absorb losses equivalent to between 17% and 20% of risk-weighted assets, can he explain why he is deciding to water down the Vickers proposal by not applying this rule to their full global balance sheets? Is the Chancellor sure this will not leave taxpayers exposed?

Mr Speaker, the Business Secretary told the BBC yesterday that Vickers was being implemented in full. This is not an implementation report, but a consultation paper. Is he implementing the Vickers recommendations in full or have the Liberal Democrats been sold a pup yet again?

Mr Speaker, on the second test  - securing international agreement  - given the Prime Minister's decision ten days ago to walk away from the negotiating table without securing any 'protections' for financial services, is the Chancellor confident he can do a better job?

In particular, Mr Speaker, is the Chancellor confident he will be able to get the necessary EU-wide agreement, and build the necessary qualified majority, in order to implement the Vickers capital requirement proposals?

And on the third test, Mr Speaker, delivering a banking system that supports the wider long-term interests of our economy, can I ask the Chancellor about competition and the supply of credit?

On competition, we argued back in September that any delay or backsliding on competition would leave consumers and small businesses to pick up an unfair share of what he has confirmed is a multi-billion pound bill for tougher capital and regulatory standards.

Developments since September have not been encouraging.

On Northern Rock, can the Chancellor reassure the House that his rather hurried trade sale will actually deliver, over the coming years, a new challenger bank, which will compete in the small business and mortgage markets? Can he confirms that will be the outcome?

Can he confirm that it is as a result of widespread concern that he will not get value for the taxpayer in his loss-making sale, that the National Audit Office has now launched an investigation?

And on the sale of Lloyds branches to support a new challenger bank, can the Chancellor explain to the House – maybe he can explain to the Business Secretary too - why he has decided not to implementing Vickers in full by increasing the size of branch sales?

Is it not overwhelmingly clear that, rather than waiting until 2015, the Chancellor should now commit to reviewing progress on competition in two years time, as we called for in September?

The fact is none of these long-term reforms can address two immediate threats to the supply of credit and the stability of our already fragile economy and banking system.   

First, Mr Speaker, here in Britain, with rising unemployment and a flat lining economy depressing confidence, thousands of small businesses are now struggling, as we know on all sides of this House, to access the credit they need to survive and grow - and net bank lending to business is not rising but falling.
So - alongside necessary long-term reforms - can the Chancellor tell the House when, rather than cutting taxes for the banks, he is finally going to act to ensure that UK banks start to increase their lending to small businesses?

Second, Mr Speaker, and most grave of all, the failure of all our political leaders to solve the Euro crisis, and in particular to get the European Central Bank to start doing its job as lender of last resort, now represents a huge and dangerous threat to British banks, businesses and jobs.

Mr Speaker, ten days ago, the Prime Minister walked away. Can the Chancellor reassure the House, that he has not walked away too?

Are he and the British Treasury seriously engaged in trying to solve what is now the gravest threat to our prosperity in this generation? And is anyone in the rest of Europe listening to this Chancellor anymore?

Chuka Umunna MP, Labour’s Shadow Business Secretary, said:

“A banking system that provides funding for businesses at every stage of their development is crucial to getting the economy growing again. Implementing the Vickers proposals is a first step towards addressing many of the long-term problems businesses face with our banking system, but we need action to get credit flowing to firms now.
“The government’s Project Merlin deal has failed to get credit flowing to businesses, with net lending to businesses contracting in nine of the past twelve months, and we are still waiting for the Chancellor to give us details on when credit easing will be up and running – while we wait businesses are continuing to go under.
“Labour are looking at ways of making sure small businesses can get the investment and finance they need by examining proposals for a National Investment Bank for small businesses. We also need to see a culture change whereby banks offer a better and more constructive service to small businesses seeking finance – too many firms are put off from seeking finance to grow at the first hurdle.”