House of Commons
Monday 12 September 2011
The House met at half-past Two o’clock
[Mr Speaker in the Chair]
Oral Answers to Questions
The Secretary of State was asked—
With permission, may I briefly update the House in relation to the appointment of the new Metropolitan Police Commissioner? The Mayor of London and I conducted interviews with the candidates this morning, and I expect to make a recommendation to the palace later today.
We have set a challenging but manageable funding settlement for the police service. It is a matter for the chief constable and the police authority in each force to determine the number of police officers that are deployed within the available resource.
May I thank the Secretary of State for her response? Will she congratulate Gwent police authority, which was recently assessed by inspectors as performing well? Can she explain why more than £100 million will be spent on elected police commissioners, given that there is no guarantee that such performance will be sustained, let alone improved, with them? Would not the money be better spent on keeping more police on our streets?
If the hon. Gentleman is going to ask questions like that, he really should get his figures right, because of course, the figure to be spent on police and crime commissioners is not £100 million. I am happy to join him in congratulating Gwent police. I had a very good meeting the other day with the chief constable of Gwent police, who is the Association of Chief Police Officers lead on matters relating to domestic violence. He talked about some of the excellent work that Gwent police had done on that.
In relation to policing, we are ensuring not only that police have the tools and powers that they need to deal with issues out on the street, but that they are freed up from a lot of the bureaucracy that was introduced by the previous Government, which kept too many police officers behind desks and not out on the streets.
Will my right hon. Friend assure me that she will not be seduced by the argument that, inevitably, more police officers means more visibility? The fact remains that there are more police on patrol on Monday morning than on Friday night, and that only 12% of officers are available at any one time to be visible to the British public. Will she tell the House what she will do to ensure that we get visibility from existing police numbers?
I thank my hon. Friend for his comments, and he is absolutely right. He has put particular focus on this issue over the years and has looked into it in some detail. It is not just a question of numbers, as it is often portrayed by Opposition Members; it is about how police officers are deployed. It is about getting them out on the streets at the time that they are most needed. As my hon. Friend has seen in the past, a lot of that is about reducing the bureaucracy that police officers deal with, reducing the targets, and letting them get out there on the streets.
I am grateful to my hon. Friend. Indeed, I had a very good visit to Northampton recently and saw some of the excellent work being done by the police there. I heard directly from the chief constable what he is doing to ensure, as my hon. Friend says, that he cuts back-office work for police officers and gets them out on the streets, which results in the impact that the public want—they want to see people out on their streets.
May I welcome the fact that the Home Secretary and the Mayor of London have agreed on their choices for the name of the next Metropolitan Police Commissioner?
When the CSR was agreed, there were no disorders in London, but the acting commissioner has said that the thin blue line was very thin during the recent disorders. If a case is made for additional resources as a result of the various inquiries that are being conducted, will the Home Secretary revisit those figures?
If I may say to the right hon. Gentleman, I expect to be having a further conversation with the Mayor after Home Office questions, but I hope to be sending a recommendation to the palace, and I firmly expect to do so, later today.
In relation to the funding figures for the Metropolitan police, the right hon. Gentleman will know full well that we are providing support to it, and indeed to other forces, as a result of the riots that took place recently. However, I am pleased to say that the previous Metropolitan Police Commissioner was able to increase visibility with police on the streets within the resources he had, by the simple and effective method of moving from police patrolling in pairs to single-patrol policing.
It is intriguing to discover that the Home Secretary and the Mayor have not yet agreed on the next Metropolitan Police Commissioner.
The previous question was about the comprehensive spending review. Her Majesty’s inspectorate of constabulary estimated that 16,000 officers would be cut as a result of the CSR. Since then, the police have faced substantial additional costs of £125 million from policing the August riots. The Home Secretary has said that she is supporting the Met police and other forces, but the Minister for Policing and Criminal Justice said in his letter that this will be only
“where forces are not in a position to cover the costs of recent events themselves”.
That leaves the police with no clarity at a time when their budgets are already being cut. Will she therefore now guarantee that no police force will have to cut any officers or services to pay for policing the riots, and will she stand by the Prime Minister’s commitment to pay this extra money to the police?
It is absolutely clear—and has been made clear to police forces affected by the riots—that police forces should put in claims to the Home Office and that we will look at them. We will be looking at claims for operational costs and riot damage costs. On the right hon. Lady’s first statement, however, I do not think that she should try to transpose on to this Government the sort of disputes that took place within the previous Government. As I understand, from reading the recent book by the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), she even disputed the extent of the deficit—as she and other Labour Members appear still to do.
I am afraid that the Home Secretary did not answer the question. She said that the Home Office is “looking” at the claims. That provides no certainty for the police or clarity for police budgets. Police officers are having to make decisions right now about making people redundant. The truth is that she is happy to find extra resources for elected police chiefs, but she will not find the extra money for the police. She is spending more than £100 million on elected police chiefs that no one wants when she could spend the same money on the costs of policing the riots or on 3,000 extra constables in Olympics year. Does she think that the public would prefer the money to be spent on elected police chiefs or on constables who will cut crime?
I think that the public want a Government who actually look after taxpayers’ money, which is exactly what we will do. The police forces know that there is a process by which they can put in claims to the Home Office. Those claims will be properly considered, and as we have made clear, the Home Office will be making funds available in relation to the matters that the right hon. Lady has raised.
The Government have set out plans to ensure that police and crime panels are representative of the places they serve. We tabled an amendment to the Bill in another place, allowing many panels to co-opt further members. This will enable local authorities to address geographical imbalances.
I thank the Minister for that response and welcome the amendment, which is obviously a step in the right direction. However, he will be aware of the particular concerns of people in Cornwall that they might not get a fair geographic representation. What additional reassurance can he give that the Home Secretary will ensure that Cornwall is fairly represented on Devon and Cornwall police panel, and will he agree to meet a delegation from Cornwall council to discuss this issue?
I understand my hon. Friend’s concerns—they have been put to me by other hon. Friends. The amendment that we moved in the other place will allow for the nomination of an additional five members to the panel. Approval for that will lie with the Secretary of State, although there must be regard to geographical balance. I hope and believe therefore that we can reassure the people of Cornwall that they will be properly represented on these panels.
The Minister will agree on what lies at the heart and success of British policing—it should be by consent, local and rooted in the community. That is why I welcome what he has just said. Will he also agree, however, that it is vital that our senior police officers have spent a year or two on the beat in the local community? Will he hit on the head these ludicrous press reports that the Government are thinking of bringing in an elite group of officers—super-duper graduates, Bullingdon club boys—to be slotted in straight away to run our police services? Policing should be local, and every chief constable should have served on the beat.
That is a travesty of the Government’s position. We have asked Tom Winsor to consider these matters. The right hon. Gentleman should pay more attention to the views of the chief constable of Devon and Cornwall, which he expressed in an article in The Times today, co-written by me. He points out that the police have not made sufficient progress on diversity and that one way to address that might be to consider additional points of entry. We also point out that operational experience would be necessary.
Since May 2010, the UK Border Agency has revoked the sponsor licence of 69 institutions. Our recent reforms of the student route include the introduction of new oversight provisions and a requirement for all sponsors to become highly trusted.
The UK Border Agency has been active in relation to the new rules that have been introduced and is looking at a number of colleges. In addition to the licences of 69 colleges and education providers being revoked, the total number whose licences have been suspended—of which that 69 forms part—is 145. We take very seriously the need to monitor the obligations that we have set out.
The Government must, of course, tackle bogus colleges, but also minimise the impact of their plans on private organisations such as the Organisation for Tourism and Hospitality Management, which is based in my constituency. It cannot now provide work experience to students—often they are from the US—even though it has a good record of students returning at the end of their studies.
I thank my right hon. Friend for raising a specific case, which we will look at. We are very careful in the rules that we introduce. My hon. Friend the Minister for Immigration and I spend a lot of time listening to individual colleges and to representative bodies of colleges and education providers to ensure that we get it right. We want to ensure that people get a proper education when they are here. That is what our rules are focused on, but I would be happy to look at the case that my right hon. Friend has raised.
Student Visas (English Language Teaching)
As part of our fundamental reforms to the student visa regime, we are tightening the system of educational oversight for institutions that bring international students to the UK. Colleges must have a satisfactory review by the end of 2012 in order to sponsor new students from overseas. That will have an impact on colleges that do not meet the high standards set by the inspection bodies.
I recently visited International House in my constituency, where students from around the world acquire an understanding not only of the English language but of Newcastle’s rich cultural heritage. However, the school faces a sharp drop in applications because of the changes, and in addition a 1,500% increase in the cost of accreditation. In these difficult times, should the Minister not be supporting legitimate schools and not trying to drive them underground?
Let me deal directly with the hon. Lady’s question about accreditation. The previous system failed. It was not rigorous enough, so we are moving to more rigorous inspections, carried out by bodies that have previously inspected the sector, including the Independent Schools Inspectorate. It is vital that we get the inspection of colleges right; otherwise, respectable institutions that deserve to be able to carry on get muddled up with the bogus colleges to which my right hon. Friend the Home Secretary has referred, and that does nobody any good—neither the respectable colleges nor genuine students seeking to come here. I hope that the hon. Lady would welcome the fact that we have introduced a better and more rigorous inspection system.
The Government launched a consultation on family migration on 13 July. This sets out proposals for tackling abuse of the family route, including sham and forced marriages. It also contains proposals to promote integration and reduce burdens on the taxpayer.
That is an important point, because sham marriages not only undermine our immigration system; they damage the institution of marriage. Forced marriage is, if anything, even worse. It represents a breach of human rights, and it is a form of violence against the victim. That is why we are proposing in our consultation to define more clearly what constitutes a genuine and continuing marriage for the purposes of the immigration rules, to help to identify sham and forced marriages. We are also exploring the case for making sham a lawful impediment to marriage in England and Wales.
My hon. Friend makes another good point. Part of our consultation involves ensuring that those who arrive here to get married come into a family that has sufficient means to support them. One of the problems that we inherited was the fact that the institution of marriage was being exploited to circumvent the immigration rules. In tightening up on this, we are not only restoring confidence in the immigration system but helping to bolster the institution of marriage. Both of those are extremely worthwhile efforts.
But is it not right that husbands and wives should be able to live together? Will the Minister assure me that spouses applying in countries with very few English language testing centres will not be kept apart from their spouses in this country simply because they cannot prove their competence in English? That is illustrated by the case of the wife of a constituent of mine who has been applying in Brazil for months to prove that she can speak sufficiently good English to join him here.
If the hon. Lady wishes to write to me about that individual case, I will take a look at it. We have established a network of testing stations around the world so that people are able to take the test. I hope that she will support the concept that, if people come to settle here, they should be able to speak English at a basic level so that they can integrate into British life. If they cannot do that, they can end up leading separate lives, which can cause many problems, especially in our inner cities.
Does the Minister share my concern that refugee family reunion has been classified as immigration for the purposes of legal aid? Given that refugees are in exile and to be reunited with their families, they have no option other than to use the legal system here, will he make representations to the Ministry of Justice on this important point?
The hon. Lady makes an important point. I assume that she is talking about refugees who have already been all the way through the system. Obviously, while people are applying for asylum or for refugee status, our checks have to be more robust than they have been in the past so that we can be absolutely sure that those who benefit from refugee status are those who need Britain’s protection, which we have always traditionally given and are happy to give. I will look into the details of the case that she has raised.
Efficiency (Police Forces)
With permission, Mr Speaker, I will take this question together with question 10 on the Order Paper.
Cambridgeshire police currently have one inspector for every three sergeants, and one chief inspector or more senior grade officer for every inspector. Will my right hon. Friend join me in welcoming the chief constable’s streamlining of senior officer grades in order to recruit an extra 50 officers in addition to the existing head count? Will he place a copy of the relevant information in the Library to allow us to benchmark the number of officers at each grade in each force?
My hon. Friend makes a good point. It is important that these kinds of overheads are reduced so as to protect the front line. I note that HMIC’s recent report also congratulated the chief constable and the authority on committing to a strategic alliance with the Hertfordshire and Bedfordshire constabularies. That is exactly the kind of partnership that can help to drive savings and protect front-line services.
Does my right hon. Friend agree that the unique office of constable is one that should be jealously safeguarded? Will he reassure me that in the drive for efficiency and in the implementation of the Winsor report, we will not throw the baby out with the bathwater?
I agree with my hon. and learned Friend about the importance of the office of constable and the independence that it preserves. He will know that the Winsor report, whose recommendations are currently being discussed, also recognised the importance of the office of constable.
For most of our constituents, efficiency is associated with visibility. Will my right hon. Friend take the opportunity to commend Sergeant Adrian Thomas and PC Paul Froggatt who last week ran a mile and a half and, without regard to their own safety, jumped into the Banbury canal to rescue a 71-year-old lady who had slipped into it? With that sort of visibility evident within the Thames valley, it must be possible to have it in every other part of the country.
I am happy to join my hon. Friend in paying tribute to the police officers for their acts of bravery. I am sure the whole House would agree that many such acts of bravery on the part of our police officers and our police community support officers are going on every day. We see that reflected each year in the police bravery awards. I believe that many of us are humbled by the selflessness and heroism of our police officers.
Given that the previous Labour Government planned efficiencies of about £1.3 billion—including on back-office staff, on procurement, on mergers such as the one between Hertfordshire and Bedfordshire, on overtime and on officer deployment—will the Minister be clear about where the extra £1 billion he proposes is going to come from, if not from officer numbers, like the 200 losing their jobs in north Wales?
First, I note that the right hon. Gentleman confirms that the Labour party is committed to reducing spending on police forces by more than £1 billion—but, of course, they did not deliver those savings when they were in government; it cannot be done without reducing the work force. We have identified additional savings, including those that will accrue from pay restraint, and indeed the £350 million a year that will accrue from better procurement of goods and services. In fact, the total savings are well over £2 billion a year.
Does the Minister welcome the news from Birmingham that officers are being taken off the street to answer the phone and deal with other administrative tasks? Is that the kind of efficiency that the Government are striving for?
The hon. Gentleman should know that, in police forces generally, a third of human resources are not on the front line. Well over 20,000 police officers are in back and middle-office positions, with a higher than average proportion of them in the West Midlands constabulary. It should be possible to drive savings while still protecting the front line. That is what we ask and expect chief constables to do.
Given the Minister’s numbering problems at the outset of these questions, he probably now recognises the importance of having a good back office.
I have read again a copy of the HMIC report, “Demanding Times”, which was published in June 2011. He will know that a table on page 4 states that only 5% of police officers and PCSOs perform back-office functions, many of them necessary. With more than 16,000 police officers to be cut during the next few years of the spending review, does this not show what we already know—that there is and will be an impact on the front line from these cuts, with the loss of uniformed and neighbourhood officers and detectives?
First, I should say that what the hon. Gentleman mentioned at the outset shows that I need a better pair of glasses. As to his question, he always mentions the number of officers in back-office positions—the fact that there are thousands of them will, I think, surprise the House—but he never mentions the considerable number in middle-office positions, are not on the front line. I repeat that well over 20,000 officers are not on the front line, with 16,000 of them in the middle office. Savings can be driven while protecting front-line services—something that Opposition Members neither understand nor accept.
Health and Safety Regulation (Police)
We have worked with the Association of Chief Police Officers, the Crown Prosecution Service and the Health and Safety Executive to publish new guidance, in order to support police officers to do the right thing by taking a common-sense approach to health and safety rules.
As we have heard from my hon. Friend the Member for Banbury (Tony Baldry), some jobs are dangerous, and being a police officer is certainly one of them. As a bomb disposal officer, I have some empathy with a police officer who told me recently that by the time he has filled out the mountain of paperwork required for health and safety, all he has done is delay the point at which he gets on the street to do his dangerous job. Although I commend the Government on tackling this area, can we not do a bit more?
Working with police forces, we continue to attack bureaucracy. I pay tribute to the work of the chief constable of the West Midlands, Chris Sims, who drives these efforts by leading our reducing bureaucracy programme board. We have identified that 2.5 million police hours could be saved through improvements to form filling and other means of reducing bureaucracy. In addition to those substantial savings, we have already announced savings in relation to reducing the burden of the stop-and-account form, and scrapping the stop form, saving another 800,000 police hours a year.
May I inform the Minister that on my regular visits to Huddersfield police station, John Robins, the chief superintendent, has never mentioned a problem of health and safety, but he is worried about the glib talk about getting rid of back-office functions, such as the crucial intelligence unit, without which police on the beat would not know where to go and what to tackle?
We are clear that intelligence functions are part of the front line. However, as I keep trying to point out to hon. Members, a third of all those employed in police forces, and all the resources they command, are not on the front line. It is, therefore, possible to drive savings without damaging or affecting the kinds of services to which the hon. Gentleman refers. Those are the questions that he should be asking his local force.
With permission, Mr Speaker, I will answer question 10 together with what I profoundly hope is question 15 on the Order Paper.
The Government introduced reforms to economic migration, including a limit, from April this year, and we have begun to implement significant changes to the student visa system. We are also consulting on changes to family migration, to break the link between work and settlement, and on overseas domestic workers. Taken together, those measures present a comprehensive package to tackle abuse and reduce net migration.
Along with the list I just read out, that is a long-term issue that we are tackling. Our consultation on employment-related settlement, which was published on 9 June, sets out proposals for breaking the link between work and settlement, including making the skilled migrants route, tier 2, a primarily temporary one. One problem that this country has had is that people come here and are not sure whether they are on a permanent or temporary route. That problem does not affect most countries’ immigration systems, and we are determined to drive it out from our country’s system as well.
The problem for the previous Government was that, in letting in uncontrolled numbers, they did not differentiate between those who would bring benefits to the British economy and those who would act as a drag on it. At the heart of our policy is the distinction between those whom we want in this country—the brightest and the best—to study, work and bring long-term benefits to this country, and those whom we do not want, who either evade what they are supposed to be doing, coming here pretending to study but wanting to work, or still more, who come here to live off our benefits system. We will have a much better focused immigration system, as well as significantly lower net migration.
One of the groups who have been coming to this country over the past 15 or 20 years—and indeed, for longer—and who have contributed significantly to it socially, culturally and economically are people who study at Christian theological colleges and Bible colleges in the United Kingdom, but they currently face a very difficult time because of the Government’s policies. Many Bible colleges may have to close. I am sure that the Minister does not intend that source to dry up, so may I urge him to give specific consideration to the group of people concerned to establish whether there is something that he can do?
I am happy to reassure the hon. Gentleman that we are in close contact with the various small theological colleges, and are considering how we can resolve the issues involved. As I have said, genuine students studying genuine courses at genuine institutions of study are of course welcome in this country.
The latest figures show that net migration has risen by 20% to 239,000, that the number of work visas issued by the Government has gone up rather than down since their cap was introduced, and that as a result of the changes in the English language requirement for spousal visas, only 55 visas for a three-month period have been refused. What will it take for the Minister to admit that his rhetoric on immigration does not match the reality, and when will he start being up-front with the British public?
I am always up-front. Indeed, let me be up-front about the “latest figures” that the hon. Lady has quoted. They are the figures for December last year, and thus cover the last few months of the Labour Government. When that Government introduced the points-based system that the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) said was providing progress in the immigration system, net migration was 165,000; two years later, after two years of Labour policies, it was 239,000. That is why we are acting on the work route, the student route and the family route, and on the link between temporary and permanent migration. Only now that we have a Government who are determined to act across the board on immigration will we get the numbers under control after 13 years of abject failure under Labour.
Does the Minister accept that immigration supplies people who are essential to a whole range of activities, such as the work of high-tech companies, research, and a huge number of other activities in my constituency? Will he ensure that that flow continues, and resist the siren calls both from the Opposition and from his own Back Benchers for the Government to clamp down on people whom we desperately need?
I hope my hon. Friend will recognise that the changes we have made to, in particular, the work-based system allow skilled workers with a specific offer of a specific job to come to this country, while preventing the entry of unskilled workers and of people who pretend that they wish to study when their main intention is to work. In that way we can indeed retain the advantage of those who bring benefits to the country, but without retaining the old immigration system, which was out of control and destroyed public confidence in all kinds of immigration.
This Government are clear that reducing antisocial behaviour is core business for the police and their local partners. Current action includes highlighting effective practice that will help professionals to improve their response to victims and communities, setting out proposals for more effective powers, and making more data available to the public.
We know that nearly two thirds of under-16-year-olds breach their antisocial behaviour orders. Will the Minister reassure my constituents that despite the protests of the shadow Home Secretary, ASBOs will be replaced with effective sanctions that will actually tackle antisocial behaviour?
My hon. Friend has made an important point about the measures available to professionals on the front line who are dealing with antisocial behaviour. We are keen to ensure that they have discretion to deal with problems in their localities, and can act speedily to bring relief to communities that are suffering from such behaviour. That is the focus of the Government, that is what we have been consulting on, and we will present our response to the consultation in due course.
The Met have said that ASBOs have been a valuable tool in combating violence and antisocial behaviour on the part of gangs. Following the August riots, will the Government ditch their plans to weaken the ASBO regime through proposals to remove the criminal sanctions and introduce far lighter penalties for those who flout the law? Do communities not deserve to be protected by the full force of the criminal law?
I am sorry to tell the hon. Lady that I think she has completely misunderstood the situation. We are ensuring that antisocial behaviour measures are effective and will provide relief for communities. As for the need to combat gangs, we are ensuring that injunctions are available to support the police and communities and enable firm and clear action to be taken against gangs, and we will have rolled them out to all communities by the end of this year. Those are practical measures to bring relief to communities, which is what the Government are determined to do.
Can my hon. Friend reassure my constituents that the introduction of police and crime commissioners will help to ensure that the police focus on local policing priorities, such as antisocial behaviour, that matter in neighbourhoods such as those across my constituency?
With a mandate that will respond to local concerns and priorities, I have little doubt that police and crime commissioners will focus on how their local police forces address antisocial behaviour and will ensure that the necessary strategies, funding and resources are made available. Our reforms are designed precisely to ensure that local communities’ views are heard very loudly and clearly. That is at the heart of the reforms, and I am sure that police and crime commissioners will have antisocial behaviour at the top of their agendas.
The Minister is using some robust words, but he does not seem to understand the point. Antisocial behaviour orders are a preventive measure but they need the back-up of a criminal sanction to make them effective. That has worked across the country. Does he not listen to the police, who say it is an essential element in tackling antisocial behaviour?
The Association of Chief Police Officers has been clear that it supports
“a simplification of the tools and powers available to frontline practitioners, making it easier for them to do what works best.”
That is the action we are taking to help the police and communities, and to bring relief against antisocial behaviour, which, sadly, the last Government failed to do.
Illegal Immigrants (NHS Treatment)
The UK Border Agency works closely with health professionals to facilitate the removal of patients who are not entitled to remain in the country. Where appropriate, special arrangements are made for the removal of persons undergoing treatment, including the provision of medical escorts. The Government take a robust stance on abuse of NHS services.
I thank my hon. Friend for his answer. My local hospital, Russells Hall, was forced to admit a Pakistani national who was not eligible for NHS treatment. He was given a discharge when he was medically fit to leave the hospital. That was as long ago as August last year, yet since then the hospital has had to negotiate with the border agency and Pakistan International Airlines for a date for his release, and that has cost £100,000-plus. Can my hon. Friend assure me that he will put the necessary pressure on the border agency to enable this individual to be released without further delay?
My hon. Friend will appreciate that I cannot go into too much detail on the Floor of the House about an individual case. I am, however, happy to be able to reassure her that since she brought this case to my personal attention, an airline has now been found to carry the individual concerned. We are sorting out care and reception arrangements in order to ensure that the removal goes smoothly, and I understand that he will be removed in the near future.
As I said in the House last month, the recent civil unrest was a dark time for everybody who cares about their community and their country, and I realise that the hon. Gentleman’s constituency was affected. As part of the work of the inter-ministerial group on gangs, I have commissioned an assessment of the role played by gangs in the recent disorder, and I will report our findings to the House in October.
I thank the Home Secretary for her response, and should declare an interest as the chair of the London gangs forum.
I have been told by my local police that gangs were not necessarily co-ordinating all the activity in our area, although gang culture is a big ongoing issue for us. How much of the £18 million that the Government have committed to tackling this issue—funding that will help police and local community groups—will directly benefit the London borough of Lambeth?
I thank the hon. Gentleman for his question. If I may, I will write to him with the specific information he has requested about Lambeth. London as a whole is one of the three areas, along with Greater Manchester and the west midlands, that are particularly benefiting from the funding that has been made available, as they are areas where the gang problem is a particular issue. The hon. Gentleman is right that, notwithstanding whatever role gangs played in the riots and unrest of early August, we must deal with gang culture, because, sadly, it is a problem that blights too many of our communities.
Are the events of early August not a wake-up call to the fact that the problem of gang culture, which has been around for a long time, needs to be taken more seriously? Although tough enforcement action against known gang members is part of the solution, is it not clear that a much wider approach will be required to tackle the problem?
My hon. Friend is absolutely right, which is why the inter-ministerial group on gangs is not only looking at the enforcement issue; we are looking at other matters, such as preventing young people from getting involved in gangs and diverting them from gangs when they become gang members. We are examining examples of good work from both outside the UK and within it—for example, in Strathclyde and Waltham Forest.
The new Prevent strategy was published on 7 June 2011. It outlines three key objectives: responding to the ideological challenge of terrorism; supporting individuals at risk of radicalisation; and working with sectors and institutions where there are risks of radicalisation.
Will my right hon. Friend assure the House, and indeed the country, that we will not see a repeat of the scandalous situation under the previous Labour Government where public money intended for counter-terrorism actually ended up funding some extremist activity?
I thank my hon. Friend for raising that important point. As far as this Government are concerned, extremist organisations have no role in delivering the Prevent strategy, and if organisations do not support British values, we do not intend to fund them. Organisations funded by central Government must clearly demonstrate that they are working in the public interest. In this area, the transparency that has been adopted by this Government, both at central and local level, will be an important part of the process of enabling people to see where the money is being spent and to challenge that, if necessary.
T1. If she will make a statement on her departmental responsibilities. (70950)
Yesterday was, of course, the 10th anniversary of the terrorist atrocities of 9/11. None of us will ever forget the events of that day or those attacks on our own shores, including the 7/7 London bombings and the decades of terror campaigns waged in Northern Ireland. The Government remain as committed as ever to preventing future acts of terrorism and keeping the public safe. Following the death of bin Laden, al-Qaeda is weaker than at any time over the past decade. New threats will evolve, but so will our security measures to counter them. While we remember the victims, we must also remain vigilant. I commend those, particularly our front-line emergency workers, who continue to work against terrorism and risk their lives to protect ours.
Will my right hon. Friend update the House about the meetings she has had with chief constables and colleagues following the recent rioting, which was of great concern to so many of my constituents, to ensure that there is no repetition and that those involved are speedily brought to justice?
I thank my hon. and learned Friend for that question. We have had a number of meetings with chief constables and others. As I said in an earlier answer, I am chairing an inter-ministerial group that works on tackling gangs—it is looking at that particular aspect of the riots—and we have already had a number of discussions about public order policing, in particular. I have, of course, asked Her Majesty’s inspectorate of constabulary to examine the issue and advise on guidance for forces on matters such as tactics and the number of police that need to be trained in dealing with riots.
It is now 15 months since the joint thematic review on the nature and culture of gangs reported in June 2010. The review was carried out by the chief inspector of prisons, the chief inspector of constabulary and the chief inspector of probation. They concluded that
“there was no integrated joint national strategy”
and so agencies had
“missed significant opportunities to work with young people involved or likely to get involved in gangs.”
Can she say when we are likely to get a response to that review from the Government?
The hon. Gentleman has raised the matter of a review that was, of course, reporting on what had taken place under the Labour Government. We are undertaking a particular piece of work on gangs, bringing a number of Departments together to examine the issues and work out how we can best address the gang culture and prevent young people from getting involved in gangs. In doing that, we are doing what is absolutely right: we are looking at not only the evidence that has come before, but at practice on the ground today. We are finding out what is working today and looking at how to extend that good practice to other parts of the country.
I can inform my hon. Friend that the Home Secretary held a constructive meeting with the Association of Chief Police Officers, the police and representatives from the social media industry and the companies have made clear their commitment to removing illegal content and, when appropriate, closing accounts, whether at the request of the police or because of a tip-off from other users. It was agreed to step up co-operation to ensure that these processes are working effectively.
It is entirely a matter for the chief constable and police authority how they deploy their resources. There has been some rationalisation of custody and we are also very supportive of those forces that seek to contract out custody facilities and in so doing improve their service and save money.
T4. The Equality and Human Rights Commission posted qualified accounts in 2009-10 and the auditors found poor financial management, poor record keeping and poor leadership. What specific actions will the Minister take to rectify this problem and to ensure that taxpayers’ money is not wasted by that organisation?[Official Report, 14 September 2011, Vol. 532, c. 9-10MC.] (70953)
I thank my hon. Friend for drawing attention to the issue. The qualifications, of course, represent spend for periods under the previous Government and we have been absolutely clear with the EHRC from the start that any problems with its accounts under this Government are likely to result in financial consequences for it. In March, we set out our plans to change the EHRC. Our consultation closed in June and we will be responding shortly, but we have already announced that we will reduce its budget by more than half from £55 million in 2010-11 to £28.8 million in 2014-15.
T8. When it was announced that the Government would do away with the National Policing Improvement Agency, Ministers acknowledged that it was important for the functions undertaken by that agency to go to some other organisation and for there to be great clarity, but 14 months on we are still not clear. When will the Home Secretary tell us exactly which functions will go to which body as a result of the abolition of the NPIA? (70957)
The right hon. Gentleman knows that we have already identified a number of functions and where they will move to. For example, certain issues, such as non-IT procurement, have come back into the Home Office. We are working with the police forces to set up a police-owned company to deal with IT, which is a significant part of what has been undertaken previously by the NPIA. We will be making announcements about the exact destination for the other aspects of the NPIA’s work in the coming weeks.
T5. I am sure the Minister for Policing and Criminal Justice will agree that police officers need the best and most professional training. Does he therefore welcome moves by colleges such as Loughborough college in my constituency to offer a police, law and community course, which is already being used by at least three of our police forces? (70954)
I commend Loughborough college for taking the initiative in this important area. We are committed to improving the professionalism of the police. I understand that the course is not accredited at the moment and that the college should seek that accreditation before it can be treated as appropriate learning for the minimum qualification for a police officer.
The chairman of Cheshire police authority, Margaret Ollerenshaw, has written to me to say that by March 2012 we will have 217 fewer police officer posts and that by 31 March 2015 a further 151 officer posts will have to be cut. She says:
“These cuts need further consideration in the light of the service demanded of the police”.
How will these cuts, combined with 446 staff posts that will be cut, help combat crime and antisocial behaviour in Halton and Cheshire?
Tomorrow I will take part in a conference that has been organised by Cheshire police to consider those precise issues and to identify the opportunities that arise from adopting a leaner structure. The chief constable of Cheshire is as convinced as I am that it is possible to reorganise in a way that protects front-line services.
T6. Will the Home Secretary join me in congratulating Thames Valley police on halving crime at this year’s Reading festival compared with last year and, more generally, on demonstrating that it is possible to protect visible front-line policing while finding budget savings? (70955)
I thank my hon. Friend for his question, to which I am very happy to respond, not least because I could hear Reading festival from my home even with the doors and windows shut. A significant number of people attended that event, which has had problems with crime in the past, so Thames Valley police are to be congratulated on the work they did this year to reduce crime. The Thames Valley force is a very good example of a force that is committed to ensuring that it retains front-line and response policing while also cutting costs by, for example, collaborating with other forces.
The chief constable of Greater Manchester says that he is closing police stations to make his force more like Argos. Does the Home Secretary agree with that crazy comparison? My experience of Argos is that the local branch never has what you want and you have to travel miles to find it.
The chief constable of Greater Manchester has been absolutely clear that it is possible to make cuts in budgets but that it is also necessary to make changes in and transform the way that policing is delivered. He is committed, as are other chief constables, to ensuring that he delivers a quality service to the people of Greater Manchester.
T7. Given that so many people were left for years—sometimes for more than a decade—with uncertain immigration status, creating wrenching circumstances if their claims for status fail now, does the Minister consider that it was immoral of the previous Labour Government to lose control of the immigration system, and will he assure the House that he will not do likewise? (70956)
Yes, my hon. Friend knows that one of the myriad problems we inherited on the immigration front was the remains of a backlog of half a million asylum cases that had simply disappeared inside a warehouse. We have now got to the end of that process, but he is right: it is absolutely essential not to let any similar-sized backlog build up again—not just for general confidence in the immigration system, but as part of our moral duty to treat anyone who comes to this country and applies for asylum with as much efficiency as we can. The system should work not just for them but for the taxpayer. It is a win-win if we get the asylum system to be more competent than it was.
Some of the most pressurised communities in London are facing the loss of familiar and well-liked safer neighbourhood sergeants. Will the Minister give an assurance that there will be no more reductions in the local leadership of safer neighbourhood teams, or is the model of ward-based safer neighbourhood policing now dead under this Government?
The hon. Lady knows that this is a matter for the leadership of the Metropolitan police and for the Mayor. The Mayor has made it clear that he seeks to maintain the number of police officers in London at above 32,000, which will be more than he inherited from his Labour predecessor, and to protect neighbourhood policing.
T9. In Torpoint and other parts of my constituency, police response teams are finding that their times are restricted by the geography of the area, which means that some officers are forced to cross the River Tamar on a ferry or to drive for at least 30 minutes. Does my right hon. Friend consider that that is acceptable? (70958)
I understand my hon. Friend’s concerns about this issue and I also appreciate the particular geography in that part of her constituency. These matters of deployment are for the chief constable to decide and it is better that Ministers do not try to second-guess those, but I am happy to draw her concerns to the chief constable’s attention.
I think that what is important is the visibility and availability of police officers, which is variable between police forces. In many cases, it can be significantly improved. I have said to the House before that if police forces can find innovative ways to increase their presence in communities—for instance, by being in supermarkets—that can often be very much better than maintaining empty or underused offices that are rarely visited.
Will the Home Secretary place in the Library a definition, with examples, of what constitutes police back-office and, as we have heard this afternoon, middle-office facilities? Does she accept that part of the front line is 24-hour policing with 24-hour police stations in our major urban centres?
I am happy to say to my hon. Friend that the work on the definition of the back, middle and front-line functions has been done by Her Majesty’s inspectorate of constabulary, not by the Home Office. A report defining those functions is available from HMIC, and I am happy to make sure that it is available in the Library.
As there has barely been any reduction in front-line police officers in the period that the hon. Gentleman describes, I think that what he tries to imply is false. What matters is how effectively police officers are deployed and how efficiently they are working. What Opposition Members do not accept is that we have to deal with the deficit. We must find the savings because of the mess they left this country in.
Will my right hon. Friend condemn the antisocial behaviour and racism of the Islamist demonstration near the commemoration of 9/11 yesterday? Does she agree that that demonstration should not have been allowed to take place so close to the commemoration, and will she take steps to stop that happening again?
Anybody who engages in criminal activity should be dealt with appropriately. I am pleased to inform the House that I understand that nine arrests were made at the time yesterday, but further arrests have been made. The number up to date is 33, but that may change.
The recent disturbances in Salford had a large element of organised criminality. The Home Secretary is aware of Operation Gulf in Salford, led by Superintendent Kevin Mulligan, which has had significant success against organised criminals. With the cuts that are proposed in Greater Manchester, what support can she continue to ensure goes into successful operations to tackle serious and organised crime?
As the right hon. Lady knows, chief constables will be making decisions about particular local operations that they wish to undertake, but the Government are giving much greater power to the police to deal with serious organised crime through the creation, in due course, of the national crime agency. We touch far too few organised crime groups in the UK. Organised crime costs this country £30 billion to £40 billion a year. The NCA will help to tackle that.
Following this weekend’s utterly despicable revelations of the way in which 24 of my constituents have been kept as slaves, some for 15 years, may I wholeheartedly commend the robust action of Bedfordshire police in bringing that to light and putting it right? Will the Government please pay particular attention to the issue of internal trafficking in the United Kingdom, given that 17 of those 24 slaves were British citizens?
I am sure the whole House will share my hon. Friend’s disgust at something that came as a shock to many of us. He is right. What we saw was effective police action, co-ordinated in many ways by the Serious Organised Crime Agency. As he knows, the new national crime agency will have among its functions co-ordinating activity against trafficking, both domestic and international, which will give us a much more effective way of combating such particularly vile crime.
I have been contacted by a constituent who was born in Germany while her father, an Irish citizen, was stationed there with the British Army in 1948. Despite her mother being British, and the fact that she has lived the remainder of her life in the UK, she is a British subject, not a British citizen, which carries additional cost and inconvenience when she travels. Will the Home Secretary consider how to resolve that historic anomaly?
Overall, we believe that huge savings could be accrued through better procurement by the police, but we have to remember that the costs of procurement are not just the cost of goods. They are the cost of the separate organisations in 43 forces that are individually procuring goods and equipment. On those calculations, we think we can save £350 million a year by more effective procurement.
Youth workers up and down the country were asked to work on the streets during the recent disturbances, but many of those workers are being made redundant. Has the Minister examined the probable impact on crime and antisocial behaviour of these cuts to youth work?
In the work of the inter-ministerial group on gangs, we will of course look at effective ways of dealing with gang culture and with young people who get caught up in criminality, but I say to the hon. Lady and her hon. and right hon. Friends that the evidence indicates that the Government, in various forms, often spend a lot of money on individuals and their families, but sadly not all of that is spent effectively. Our task is to ensure that money is focused effectively to deal with the problems.
Independent Banking Commission Report
I would like to make a statement on the final report of the Independent Commission on Banking. The report is an impressive piece of work, broad in scope, incisive in its analysis and clear in its recommendations. The Commission has done what we asked it to do; it has come up with an answer to the question of how Britain can be the home of successful international banks that lend to families and businesses without exposing British taxpayers to the massive costs of those banks failing. Frankly, it is a question that should have been asked and answered a decade ago. We should all thank Sir John Vickers and the other members of the commission—Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf—for a job well done.
The commission and its report have not come about by accident. It was set up by the coalition Government to learn the lessons of what went so catastrophically wrong: a decade-long, debt-fuelled boom that ended in a dramatic financial crisis, a deep recession and a debt overhang that is still holding back our economy; a regulatory system that totally failed to spot enormous imbalances building up and proved incapable of dealing with the crisis when it first broke; and most importantly, in the context of this report, huge global banks that turned out to be “too big to fail”, so that taxpayers were called upon for many billions of pounds in order to prevent a financial meltdown. We still do not know, and may not know for many years, how much of that money will ever be recovered, despite promises made at the time that not a penny would be lost.
We are fundamentally changing the system of regulation and tackling the debts, but the bail-out for banks is the element of the crisis that has, justifiably, caused the most anger. It is an affront both to fairness and to the very principles of a market economy. It is not available to any other sector of the economy, nor should it be. It breaks the principle that those who take risks should face the consequences of their actions. As a result, it played an important role in encouraging the excessive risk taking that caused the crisis.
Of course, taxpayer bail-outs did not happen only in this country. An international regulatory response to the crisis is now emerging, with the new Basel rules and the anticipated new additional requirements for systemic banks, but here in Britain we cannot rely only on the international reform process to make our banking system safe. The challenge we face, and the risk for our taxpayers, is different from that in most other countries. The balance sheet of our banking system is close to 500% of our GDP, compared with just over 100% in the US and around 300% in Germany and France. Only Iceland, Ireland and Switzerland had larger banking systems, relative to their GDP, and they have all now taken action that goes well beyond new international standards. As the report states,
“part of the challenge for reform is to reconcile the UK’s position as an international financial centre with stable banking”.
This is what I have called the British dilemma: how to remain a successful global centre of finance without asking taxpayers to bear unacceptable risks or putting the broader economy at risk. We set up the Banking Commission to help us solve the British dilemma.
“the objective of such a ring-fence would be to isolate those banking activities where continuous provision of service is vital to the economy and to a bank’s customers.”
The costs should fall on shareholders and the wholesale debt holders, not on small depositors or on taxpayers. A successful ring fence will be able to ensure the continuation of vital payment services that are crucial to preventing an economic collapse, and this directly addresses the perceived implicit taxpayer guarantee, which is at the heart of the too-big-to-fail problem.
The commission has also proposed a more flexible ring fence. In terms of scope, it says that
“domestic retail banking services should be inside the ring fence, global wholesale/investment banking should be outside, and the provision of straightforward banking services to large domestic non-financial companies can be in or out.”
Many will see this as sensible, and it will reduce inefficiencies resulting from any mismatch between customer deposits and business lending within an individual bank.
On the strength—or height, if you like—of the ring fence, the commission recommends that the retail subsidiary should have what it calls “economic independence”. In other words, it should meet regulatory requirements on a stand-alone basis, and its relationships with other parts of the group should be at arm’s length and regulated in the same way as relationships with third parties. A great deal of detailed work will now be required to see how that principle can be put into practice.
Secondly, the commission has also made important recommendations to ensure that banks have bigger cushions to withstand losses, so the large retail ring-fenced banks should have equity capital of at least 10%. It also recommends that retail and other activities of large UK banking groups should both have primary loss-absorbing capacity of at least 17% to 20%, including long-term debt that can be written off, so that, unlike last time, both shareholders and bondholders bear losses, not the taxpayer. Within that, the commission recommends some regulatory discretion over the composition of this loss-absorbing capacity, and again many will see that as sensible.
Thirdly, the commission recommends the introduction of depositor preference. I repeat again in this House that the Financial Services Compensation Scheme covers 100% of eligible deposits up to the new European limit of €100,000, or £85,000. The depositor preference proposals would bolster the scheme by ensuring that other bank creditors were subject to losses first when a bank went bust, minimising the cost to the scheme and ultimately to the taxpayer.
The fourth set of recommendations relates to competition in the banking sector. These have not had as much attention as the other recommendations, but they are arguably as important to families and businesses. I agree with the commission that the best way to ensure a reliable and affordable supply of lending to our families and businesses is through competition.
The collapse of banks such as Bradford & Bingley and the merger of Lloyds and HBOS, which the previous Government welcomed, means that there is too little competition and switching bank accounts remains difficult. I welcome the commission’s recommendations to change that.
On the divestment of the Lloyds branches, the commission has said that the key test should be the emergence of a strong and effective new challenger bank, and I agree that that would be very much in our country’s interest.
Those are the recommendations. Let me turn to the implications for the wider economy, the implications for Britain as a global financial centre and the timetable for the Government’s response.
The report is clear that the right solution, implemented properly and to the right timetable, will help our economy, not hinder it. Let us remember that the mistakes made by poorly regulated banks ended up costing the economy many, many billions of pounds. The commission notes that some of its recommendations could reduce the profitability of some banks’ investment banking operations, and that is largely because we would be removing the subsidy that comes from any perceived implicit taxpayer guarantee. We should not confuse the interest of bank shareholders with those of the British taxpayer.
It is also critical that reforms of this kind do not lead to worsening credit conditions in the economy. Indeed, John Vickers says:
“Banks with more robust capital, together with the creation of the ring-fence, would provide a secure and stable framework for the supply of credit to businesses and households in the UK economy.”
The commission believes that its proposals could help to rebuild the culture of relationship banking which has been so sadly lost over the past decades, and that would help banks to understand the credit needs of their customers better.
Let me turn to the UK’s role as a global centre for finance and banking. I will be very clear: the Government want Britain and the City of London to be the pre-eminent global centre for banking and finance; and we want universal banks headquartered here, with all the advantages that that brings. The Vickers report explicitly addresses this issue, and, for those investment banks with credible recovery plans, it has not recommended higher equity requirements than those agreed at an international level.
This means that the global investment banking operations of UK banks can continue to be as competitive as any in the world, and we as a Government will continue to keep the City as a whole internationally competitive, as was clear last week when we welcomed, with the Chinese Government, the development of the offshore renminbi—RMB—market in London.
Let me end by explaining to the House how we will now take forward the commission’s report. We have welcomed the recommendations in principle. They would require far-reaching and complex changes; John Vickers is the first to say that they cannot be delivered overnight. The detailed work will start immediately. We will consult on the costs and benefits of the most appropriate way to implement these changes—and we will provide a response by the end of this year so that there is no uncertainty hanging over the industry. We will legislate in this Parliament to put the needed changes into law. We will consider which changes can be in the existing draft Financial Services Bill and which will need a new Bill, and we will discuss these changes with international partners to ensure consistency with international agreements and EU law. We will follow the advice of the independent commission and ensure that any changes to the British banking system are fully completed by 2019. This is a sensible timetable that fits with the international regime. As John Vickers himself said this morning,
“short-termism got us into this mess and we need long-termism to build a more stable system for the future”.
The question of how Britain can be the home of successful, global banks that lend to British families and businesses but do not have to be bailed out by British taxpayers should have been answered a decade ago, but it was not even asked—and that failure means this country is still paying the price for that failure. Billions of pounds have been spent and hundreds of thousands of jobs have been lost as a result. It is this coalition Government who set up the Independent Commission on Banking—not just to ask the questions but to provide the answers. Today represents a decisive moment when we take a step towards a new banking system that works for Britain. I commend this statement to the House.
Let me start by expressing our thanks to Sir John Vickers and the Independent Commission on Banking for producing a report which will radically reshape our banking industry and our wider economy and which will echo all around the world. It is now the task of the Government and this Parliament to respond to its recommendations in an equally balanced, radical and timely manner, because taxpayers, customers and businesses want radical action. They were shocked and angered by the irresponsible actions of banks in New York, in London, in Frankfurt and in Amsterdam which caused the global financial crisis. But while they are angry at the banks, they are also angry with the regulators, the central bankers and the Governments who failed to foresee and prevent this irresponsibility.
As I have said before, for the part that I and the last Labour Government played in that global regulatory failure, I am deeply sorry. But let me say to Conservative Members and, in particular, to the Chancellor, who accused me in 2006 of supporting
regulation which, he said, would make
“cross-border market penetration more difficult”
“threatens the global competitiveness of the City of London”,
that perhaps the Chancellor also needs to show a little humility about that global regulatory failure.
In April, I set three tests which I believe the Government must meet in implementing banking reform: to protect taxpayers in the future; to secure international agreement to protect jobs in Britain; and to deliver a wider banking system to support the wider long-term interests of our economy. I will take them in turn. First, to protect taxpayers, we support the commission’s radical reforms on ring-fencing and regulatory standards. Unlike the Chancellor, who revealingly supports them in principle, we agree with the Business Secretary and support them in practice. We agree with the commission, which says that the current weak state of the economy does not weaken but strengthens the case for reform. These are complex reforms, and the cautious timetable that the commission has set is understandable. However, given the unsettling public bickering we have seen within the Cabinet in recent weeks, we strongly agree that the Government must provide clarity about their view of the commission’s recommendations as soon as possible—and move rapidly to put in place the necessary legislation and rules.
So let me ask the Chancellor this: will he agree to publish, by end of this year, alongside his response, a detailed implementation plan for the commission’s recommendations on ring-fencing, including clear milestone dates? Will he agree to legislate as many of these changes as possible in the draft Financial Services Bill? To make sure that there is no foot-dragging—to move beyond principle to practice—will he agree with our proposal to ask the Vickers commission to come back in 12 months’ time and publish an independent report on progress so far?
On the second test of securing international agreement, will the Chancellor ensure that the Vickers report is placed firmly at the centre of the global financial reform agenda? Will he set out a plan and timetable for that international process? In recent months, he has failed to deliver international leadership on the eurozone. If he fails on this agenda, we will see a global race to the bottom, with other financial services centres taking short-term advantage of our tougher approach, which would put thousands of UK jobs at risk.
Thirdly, on competition in the wider economy, the commission is right to highlight the costs to consumers and businesses of excessive concentration in UK banking. Greater competition is not the whole answer to the culture of short-termism that still plagues our capital markets, but we fully support the commission’s recommendations on divestiture, a new challenger bank, easier account switching and a stronger competition duty on the new financial regulator. However, until 2015 is too long to wait to judge whether progress is sufficient or whether we need a referral to the Competition Commission. Delays could leave consumers and small businesses to pick up an unfair share of the multi-billion pound bill for tougher capital standards. Will the Chancellor therefore commit to review progress not in four years, but in two years in 2013—two years earlier than the commission recommends?
Finally, none of these reforms can help the thousands of small businesses that are currently struggling to access the credit they need. As the Bank of England has confirmed, net bank lending to business is not rising, but falling. It is down £4 billion in the most recent figures, despite the Chancellor’s toothless Merlin deal with the banks. Will the Chancellor agree today to ensure that state-owned banks increase their lending in the coming months? Will he act now to have greater transparency on pay and bonuses and repeat the bank bonus tax for a second year? Will he recognise that rising unemployment and a flatlining economy will further depress confidence and small business borrowing until he changes course and adopts a plan B for growth and jobs? Today’s report provides some of the answers to the pressing problems we face; it is time the Chancellor woke up to the rest.
Let me start by welcoming the right hon. Gentleman’s support for the report of the Independent Banking Commission. I welcome the fact that he now wants to see it implemented in this country, as I understand it, even if the changes are not implemented abroad. That is a change in his position from April, which I welcome. We all enjoyed his apology for what went wrong. He has another four years of those, I think, before he makes up for the horrendous mistakes that were made.
The right hon. Gentleman was the Minister responsible for the City when Northern Rock totally lost control of its wholesale funding; he was the Minister responsible for the City when RBS launched its takeover of ABN AMRO; he was the Minister responsible for the City when HBOS was making all those unsupportable loans. No one in this House knows more about how to get it wrong than the right hon. Gentleman. He talks about unseemly bickering on the Government Front Bench, yet we have just been reading the memoirs of a former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), who is no doubt about to speak. What he reveals about the regime that the shadow Chancellor operated shows that this is the pot calling the kettle black, to put it mildly.
Let me come on to the specific points that the right hon. Gentleman made. First, on the legislation in this Parliament and the draft Financial Services Bill, he is trying to make hay by exploiting a completely false distinction between principle and practice. We support these measures in principle and will put them into practice through detailed legislation. One cannot support all of this in practice because it requires detailed legislation, which even John Vickers says is not for the commission. Let there be no doubt that we support the Banking Commission’s report and that we will legislate in this Parliament. The draft Financial Services Bill might well be a vehicle for implementing some of the changes, but we might also require a separate Bill. That is partly because we need to get the draft Financial Services Bill through the House so that the new regulatory regime, which we are also introducing, is up and running by the beginning of 2013. As I said, I think it is sensible to stick with the proposal put forward by John Vickers that we set ourselves the deadline of legislating in this Parliament.
Secondly, the right hon. Gentleman talked about the international environment. He knows, as many hon. Members do, that there has been a lot of movement on the international front to introduce the new Basel requirements, which are, of course, on the same timetable as the Vickers proposal that the changes should be completed by 2019. Those are sensible changes, but we will argue for other changes that we would like to see at international level, not least the implementation of some of the agreements made under both this Government and the previous one at G20 level, on such things as bankers’ pay and remuneration. We want to see those properly implemented in all regimes. Of course, we hope that other jurisdictions, the Financial Stability Board and others will look at the report, but John Vickers was not asked to produce a regime for the world; he was asked to produce a regime for the UK to reflect the fact that we have 500% banking assets as a proportion of our GDP.
Thirdly, I am afraid that I just do not agree with the right hon. Gentleman on competition, and nor does John Vickers. The right hon. Gentleman says that we should have a Competition Commission inquiry in 2013, but my office has contacted the secretariat of the Banking Commission today to ask it for its view. The commission said that the reason why it chose 2015 is that three vital things that it wants to be operational, including the new challenger bank and the new switching of bank accounts proposals, do not come into effect until 2013. By the way, the latter is a very significant proposal, and I hope that it will get some coverage in the media among all the discussion of investment banking—the proposal is that people can easily switch their current accounts, and their direct debits and so on will follow automatically. However, that does not come into effect until 2013, and the Financial Conduct Authority is not operational till 2013.
The Banking Commission considered that timetable, and it thinks that 2015 is the right year in which to consider whether the changes are working in practice. I agree very much with that—[Interruption.] The shadow Chancellor says “12 months”, but he had 13 years to get these changes right. At the last general election, I remember having a debate with my colleague the Business Secretary and others in this House. The only party arguing against structural change of the banking system was the Labour party, so it is simply ludicrous of the shadow Chancellor to suggest that we are dragging our feet. We are getting on with it. We have produced this report within a year and a half of being in government, and now we are getting on and putting it into practice, so that we do not make the mistakes he made when he was in office.
After that uncharacteristically guilt-racked contribution by the shadow Chancellor, may I, by contrast, applaud the Chancellor for appointing this Banking Commission and for withstanding the intensive lobbying against it by the very same universal banks that very nearly destroyed the world economy? May I thank him also for accepting the recommendations of the Vickers commission? Finally, may I put it to him that I very much hope that we will proceed as he has promised, not only with legislation in this Parliament, but in implementing it as soon as possible, and well before 2019, when the long grass may have grown into a forest?
Well, I think my right hon. Friend was certainly alive when Messrs Glass and Steagall were, which most Members of the House could not say.
I respect my right hon. Friend’s experience. He has long argued for some form of separation between retail and investment banking and has been consistent in making that argument. Events have borne out his advice to successive Governments.
We asked John Vickers carefully to consider the timetable, and he gave a lot of thought to it. He recommends that all the changes should be completed by 2019, but that other changes should take place at earlier dates—he specifies those dates in his work. The 2019 back-stop is appropriate, because that is the date when the international rules also need to be in place. We should not underestimate the huge amount of work to be done in this House to get the report turned into legislation that works and that people do not find ways around.
I am grateful to the Chancellor for plugging my book, but when he gets a chance to read it, I think that he will see that political parties on both sides of the House went along with the culture that led to some of the problems we had to deal with and that some of the shrillest voices calling for light-touch regulation were those of Members now sitting on the Treasury Bench. Will he tell us a bit more about what discussions he proposes having with other Governments, in view of the interconnected nature of the banking system, which is only as strong as its weakest part? Will he also deal with the erroneous assumption that there will never be a case in the future when a Government might have to bail out an investment bank? We should remember what happened to Lehman Brothers. It cannot ever be said that we will never have to do that again, even with a bank that is not thought now to be systemically important. I welcome the report, but it has to be seen as part of a wider range of reforms necessary to make our banking system stronger and more secure.
I respect the right hon. Gentleman’s experience of having been through all that he went through as Chancellor. He had to deal with these problems in real time over long weekends, and I have paid tribute previously to the work that he did on behalf of our country in those difficult months. As for his book, I have only just started reading it, but as far as I can see, I get off relatively lightly compared to the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).
The right hon. Gentleman made a good point about the interconnectedness of the banking system. The Basel rules are significant, and I believe that that process was initiated when he was Chancellor and representing the United Kingdom. New arrangements have been agreed in record time. It took 10 years to come up with Basel II, but about 18 months to come up with Basel III. The international rules are important because they help us to deal with investment banks in foreign jurisdictions, such as Lehman Brothers, and to protect all globally systemically important banks and give them bigger cushions. As he well knows, new proposals are coming down the track for additional capital requirements on the most globally systemically important banks. That is significant. Also, we are putting in place the recovery-and-resolution ideas that, again, he initiated when he was Chancellor in order to ensure that we can deal with the failure of the UK end of an American investment bank. That will ensure that these banks do not just live internationally and die nationally, but that we can resolve any problems.
I would make a broader point, however. Yes, we have to do that at an international level, but we also have to consider regimes that have large concentrations of banking, such as Switzerland—let us, for a moment, leave aside Ireland and Iceland, which were obviously virtually bankrupted by what happened. It is interesting that Switzerland, which, as the right hon. Gentleman knows, is as keen as anyone to remain internationally competitive, has introduced its own domestic regime for its banks. It is wholly appropriate for us to consider doing that in this country while, of course, recommending to other countries changes that we think are sensible for all jurisdictions.
Sir John Vickers has made a strong case both on competition, on which he has endorsed proposals from the Treasury Committee, and on the ring fence, on which the Committee will now be taking evidence from him. On the timing of implementation, however, rather than adding a ring fence to the list of measures in the current Financial Services Bill, which is already long and complex, surely it is sensible to commit now to a separate ring-fencing Bill in this Parliament, while making it clear now that full implementation of the higher capital and debt requirements, which might lead in the short term to lending risks, can be left at least until 2018 or possibly later?
The Chairman of the Treasury Select Committee makes a sensible suggestion. It is likely—I do not want to say certain—that we will need a separate piece of legislation on some of these specific changes to banking. However, I hope that we can also use the Financial Services Bill to implement other key parts of the reform. That is the case because we want to get this right. The draft Bill is currently being discussed by the Joint Committee chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), and we simply will not be able to produce all that detail in the next couple of months before the Bill is introduced. We have to get this right. As John Vickers said, short-termism got us into this mess, and we need a bit of long-termism to get it right. However, I hope that the commitment to legislate in this Parliament reassures people that it is going to happen in this Parliament. This bunch of Ministers, this Government, will be held accountable if we do not legislate in this Parliament. We have given a clear commitment, and I am sure that the work of the Treasury Committee, which my hon. Friend chairs, in looking at how this report can be put into practice will be very valuable.
Why effect a firewall between retail and investment banking—which is highly complex and which the banks will use every device to get round—rather than effecting a clean break, which provided 60 years of stable banking after the great depression? Why wait eight years to implement some of the changes, when that will continue to expose taxpayers to another financial crash and when the banks are still too big to fail?
One of the original purposes of creating the Banking Commission was to try to resolve the argument, which is held in this Chamber and elsewhere, about whether to split banks, ring-fence them or leave things as they are. In this report John Vickers goes through all the arguments for a complete separation of the banks and comes down on the side of saying that it would not be sensible. He thinks that the cost to the economy would be particularly high, and without any real stability benefits. He also thinks that there are circumstances where one would want a retail bank to be supported by the rest of the bank—the investment bank—and have money transferred into it, which would enhance stability. The third point, which will not be universally popular in this Chamber, is that such a separation would be almost unenforceable under European law, because other European banks—or, indeed, one of our banks that had moved to another European jurisdiction—could passport money in. For those three reasons, John Vickers does not think it sensible to split the banks up.
Reform of the banks was one of the key foundation stones of the coalition Government, so I very much welcome today’s report. The public will certainly expect this Government to legislate as soon as possible to enact the various parts of the report, but they will need a reassurance today that there will be no excuse for the banks not returning to lending to small and medium-sized businesses, which are so necessary for our economies to return to sustainable growth.
The agreement among my right hon. Friend the Chief Secretary to the Treasury, the Business Secretary, me, the Prime Minister and other members of the coalition Government has been solid on this report. Anyone who has been looking for disagreement in the coalition has not really been able to find it today because both parties agreed that this was a good idea and we both support the report’s conclusions. On lending, briefly, we have the Merlin agreements and we are trying to protect small and medium-sized businesses as these huge banks deleverage, and the process has helped to do that. Indeed, the targets are for a big increase in small business lending, and I am confident that they will be met.
It does not take an expert in forecasting—or even the Chancellor of the Exchequer—to foresee large banks seeking to use the proposed changes to increase restrictions on customers accessing bank accounts, cashpoints and other services, or to impose charges for bank accounts. What reassurance can the Chancellor provide me and my constituents that his Government will not let that happen?
As I said in my initial statement, an important part of this report—it will not be at the top of the evening news tonight, but it is important—is the proposals to enhance competition on the high street and create a new challenger bank, so that customers have real choices. There is also a proposal for a free service that would enable anyone who wanted to switch their current account to do so almost immediately, with all their direct debits and all the other things attached to their account switched too. That will really help customers to shop around—at the moment, customers do not switch their current accounts because they think that it would be too difficult and cumbersome—and is one of the most retail-friendly proposals in the report.
If there is one class of people more unpopular than MPs, it is bankers—and I know where all the populist pressure is coming from. However, regulators do not create wealth; they stifle it. Does my right hon. Friend acknowledge that we have to live in the real world and that London’s pre-eminent position is based on the fact that we have the lightest regulatory regime in Europe? Will he undertake to preserve that for the sake of our wealth creation and not kill the goose that lays the golden egg?
Well, it was not much of a golden egg, unfortunately, in recent years. It is important for this country that London, Edinburgh and other centres remain globally competitive and that London remains the pre-eminent global centre for finance. Some of the changes taking place in the City, such as the one I mentioned, involving trying to develop an offshore renminbi market, are all part of London being a competitive place to do business. However, being a competitive place in which to do financial services does not mean that there has to be a huge taxpayer subsidy for universal banks and their retail banking arms in the UK. John Vickers explicitly deals with the competition issue. People might have expected him to come to a different conclusion on this, but one of the interesting things he said was that we should not impose additional capital-to-equity ratios on investment banks, precisely because he does not want us to make them internationally uncompetitive.
I thank the Chancellor for his statement, and for giving me early sight of it. I congratulate the commission on the report, and particularly on the report’s dealing with the resilience in the banks and its rejection of splitting up the universal banks in favour of flexible ring-fencing. However, the timetable for this is eight years from today until the final implementation. That is necessary because of the complexity and the potential cost to the banks of implementation, but will the Chancellor ensure that the banks do not consider the next eight years to be a hiatus during which they can return to business, and bonuses, as usual? Will he also ensure that he drives forward as many of these recommendations as he can as quickly as possible before the 2019 backstop?
I will not repeat what I have said about the timetable. Suffice it to say that it is what John Vickers recommended, having really thought about it. This involves a combination of getting the detail right and ensuring that the changes do not unduly damage credit supply in the short term. That is why he has recommended a longer timetable. As he pointed out at his press conference this morning, once we propose such changes and start to legislate for them, some of them will start to happen anyway as banks try to get ahead of the curve—that is certainly what happened with Basel, although they were arguably too quick to get ahead of the curve in that instance—and that is what he anticipates happening when the changes are introduced.
Given the report’s emphasis not only on the size of the British banking sector but on the lack of competition within it, will the Chancellor assure the House that he will follow through on the recommendations to encourage new and challenger banks to provide the finance that our small businesses desperately need?
I can absolutely give my hon. Friend that assurance. The report addresses the issue of Lloyds, which is required to sell branches under European Union state aid requirements. John Vickers thinks that the key test for the Government’s handling of the Lloyds issue will be whether we have created an effective challenger bank. He thinks that any such new bank should have about 6% of the personal current account market, which is more than the state aid proposals would lead to, and that it should be properly funded. I take those recommendations very seriously.
What reassurance can the Chancellor give the House that the ring-fencing will be effective at the time when it is most likely to be tested—namely, in the run-up to another debt or liquidity crisis? I listened to his earlier answer about the investment banks putting money into the high street banks, and about that being an advantage for the proposals for ring-fencing, but I have to tell him that I do not find that wholly convincing. If the idea is to get support, he has to be able to explain to the House how this proposal will work when it is required to do so.
In a sense, the right hon. Gentleman is right. The proof of all the arrangements that we are putting in place, and the international arrangements, will be in the pudding—although it is not really the kind of pudding that we want, because it is a banking crisis.
Yes, perhaps there are too many kitchen metaphors. The point I was making is that we are trying to clean up the mess.
We should not just assume that banking crashes happen every 70 or 100 years. We must hope that they will never happen at all, but we need to put in place the regulatory arrangements, capital requirements and structural changes that will ensure that the person who is in the hot seat the next time it happens, and has to do the job that the right hon. Member for Edinburgh South West (Mr Darling) had to do, will have more tools available to him than the right hon. Gentleman had as Chancellor.
Regulation in the banking sector has already changed beyond all recognition. In my view, the best bit of that regulation is giving accountability back to the Bank of England. There is no doubt, however, that yet more regulation will have a cost. We can see from bank share prices now that investors already think that the future of the banks is not as glowing as it was. Does my right hon. Friend agree that in order for small and medium-sized enterprises and personal current account customers to benefit in the future, we need a more diversified banking sector and we need to encourage more competition and to go beyond what the Vickers commission is doing by promoting it through the Financial Conduct Authority as well as through our implementation of the Independent Commission on Banking proposals.
I hesitate to read out bank share prices, as they might have changed in the 45 minutes I have been on my feet The reaction from the banks today has not dramatically affected the prices of UK bank shares. There has not been a dramatic fall, nor indeed a dramatic rise. They have remained broadly flat—unlike those of French and German banks, which are very substantially down today. What that also suggests is that John Vickers—and, I would argue, the Government—did a good job in trying to price the proposals into the share price by giving clear signposts about the way in which we were going, so that it did not come as a big surprise. I completely agree with my hon. Friend about the Financial Conduct Authority. As a member of the Select Committee, she can look at some of the Vickers’ proposals potentially to change the FCA’s remit. We need to consider that, as do Members who are looking at the Bill.
I, too, used the phrase “back-stop” in the statement. Vickers recommends that the changes be completed by 2019, but also recommended in his press conference that they be legislated for in this Parliament and that some of the changes might take place before that. We need to consider all these issues, but I think we need to pay attention to the 2019 date that Vickers sets out in his report.
Yes, I will certainly do that. One of the discussions going on in international circles at the moment is how to make all the various standard-setting bodies more accountable. They are very powerful institutions now and they are not really accountable to national Parliaments or international bodies that represent national Governments. Discussion is going on about how the Financial Stability Board, which is the organisation that brings together different banking areas and different countries to discuss regulation, might be able to make the international accounting standards more accountable.
Small and medium-sized enterprises are going to be at the heart of any future economic recovery. I went around a number of businesses in my constituency during the summer recess and the message I was getting, which is different from what the Chancellor has said, was that they are still finding it difficult to get banks to provide lending and support. What is the Chancellor going to do about it? Those businesses cannot wait around for a few years for legislation to happen, so what is the Chancellor going to do today, next week and next month to improve the lending and support from banks, as it is still a problem for the businesses in my constituency?
I have already talked about how the Merlin agreements try to protect and indeed increase small and medium-sized business lending at a time when many of these banks are shrinking their balance-sheets, which were over-extended. We have talked a lot about timetables. The Lloyds divestment and the creation of a new challenger bank are things that have to be got on with this year. The offer has to be put to bidders this year and it must be completed by 2013—and, hopefully, sooner. In other words, we are encouraging the creation of a new presence on the high street, which should give the hon. Gentleman’s constituents greater choice and competition.
This report is warmly welcomed, as, indeed, is the Chancellor’s response. It has to be said, however, that 2019 is a long time away. Will the Chancellor reassure the House, business and the public by publishing as soon as possible the specific route by which these recommendations will be implemented?
As I have said, the 2019 back-stop is the considered view of John Vickers and his commission. They have spent an enormous amount of time thinking about this, about trying to get the balance right between getting the rules in place, getting the rules right, and ensuring that they do not damage credit supply in the short term, about which many Members have asked. The report contains other milestones—some of the changes that he wants to see put into place by 2013, for example. John Vickers has done a good piece of work, and given a lot of thought to the issues, and I do not want to second-guess them just hours after he has published his report. We will produce a full, detailed response to the report by the end of the year.
The Chancellor has referred to Project Merlin, which is generally regarded as a fairly ineffectual agreement, not least because, according to Bank of England figures, net lending to small and medium-sized enterprises has contracted month on month. Across the House, we can agree that it would be undesirable for politicians to seek directly to run the banks in which we have a public stake, but surely that should not preclude the Chancellor asking United Kingdom Financial Investments Ltd to ensure that the banks change the culture that they exercise towards SMEs. When was the Chancellor’s last discussion with UKFI about that?
I talk to UKFI all the time, and one of the things I talk about is ensuring that the banks in which we have a public ownership of shares are meeting their Merlin lending targets. I congratulate Lloyds, which has changed its operations and advertising campaigns and has tried to encourage small business lending. The hon. Gentleman talks about targets, but again there is complete amnesia about the fact that Labour were in government about 18 months ago. The Labour Government introduced net lending targets, which he wants us to introduce, abandoned them after 12 months, after those targets were completely missed, and then said in the House of Commons that they would introduce gross lending targets for two banks, RBS and Lloyds. We have not just stuck with the methodology that they developed, but have extended it to the entire banking system. Before they criticise those trying to clear up the mess, Labour should remember what they did in office.
I welcome my right hon. Friend’s comment that we should not confuse the interests of bank shareholders with those of taxpayers. Should we not also remind ourselves, however, that unless the shareholders are doing well, the bank balance sheets will not be doing well, and ultimately small business borrowers will not be doing well? He is winning the argument on the reforms, but will he reassure the House that he is mindful of the cost of capital of banks? By raising business costs for banks, we would be in danger not only of driving them offshore, but of raising the costs of capital for UK business.
Of course, that is the difficult balance that we all must get right. The challenge is to ensure that banks can lend well, as people have been asking them to, while at the same time ensuring that they have a greater cushion should things go wrong. In his report, one of the things that John Vickers points to is that if a bank is ring-fenced, its retail deposits are more likely to be used to support retail lending than to support an investment bank’s activities. He thinks that the ring fence could positively enhance lending opportunities for ring-fenced banks.
Given that Northern Rock had no investment arm and Lehmans had no retail arm, does the Chancellor have any sympathy with the view that ring-fencing will add little over the proper capital requirements and ethical investment decisions that Vickers calls for, save for £6 billion additional cost to the UK economy?
The short answer is no, I do not. On pages 31, 32 and 33, the report of John Vickers and his commission goes through how the reforms would have improved the situation regarding Northern Rock, Lehman Brothers, RBS and HBOS. We must remember that the reforms are in the round. I have been asked a lot about ring-fencing and retail lending, but there are also higher capital requirements, and a requirement for a loss-absorbing cushion for bondholders. Those changes would also have helped with Northern Rock. On top of that, the new regulatory regime would, I hope, have exercised more judgment.
Of course, the ring-fencing idea, which is just one of the four or five major recommendations, is only really relevant to universal banks. The only universal bank listed by the hon. Gentleman that went wrong is RBS. As is clear from the memoirs of the former Chancellor, ring-fencing would have helped enormously to resolve the problems of a very complex universal bank without the need for recourse to the taxpayer.
The ICB’s ring-fencing proposals are not so very different from the Glass–Steagall provisions that existed in the United States. I worked for a United States bank under Glass–Steagall. I was also there when Glass–Steagall was abolished in 1999, and witnessed the adverse change in behaviour. On the basis of my experience at the coalface, may I reassure the Chancellor that he is right to welcome the proposals?
My hon. Friend—who wrote what I thought was a very good piece for The Times, published on 9 September—has made a point based on his personal experience. I may or may not offend someone when I say that he is probably the most senior former investment banker in the House of Commons.
That is because they leave the House of Commons and go to work for investment banks.
My hon. Friend's experience was that an investment bank had many incentives to use retail deposits to subsidise its activity. That was not always right, and Glass–Steagall helped to stop it. We are not reintroducing Glass–Steagall, or introducing it in the United Kingdom; we have a different set of proposals which John Vickers has spent time developing, and I think that they meet the challenge that my hon. Friend set out in his article.
The House will certainly have welcomed the statement that retail banks are likely in the future to funnel their deposits into domestic lending rather than the vast maw of the money markets. The Chancellor has said that there ought to be 10% capital for the retail banks. Presumably that is high-quality equity, and it is reported that a further 10% of non-equity may be required. May I ask the Chancellor to ensure that the capital requirements are no greater than those of Basel III? Too tall a requirement might cut across growth, and cut across lending to the small and medium-sized business sector.
Osborne: The 10% capital requirement against risk-weighted assets is based on the same definition as, and goes a bit beyond, the Basel rules, which recommend 7%. At present, however, the Financial Stability Board is developing proposals to add 2.5% for large, systemically important banks such as RBS and Barclays. The difference will be between 9.5% and 10%, which is quite close, for the retail ring-fenced side. On the investment side, as I have said, the commission does not recommend going beyond the international rules in order to keep London competitive.
On that point, let me say that I welcome the careful timetable that has been set out. That is particularly important when the Government are prepared to act unilaterally, which the last Government were not prepared to do.
May I urge the Chancellor, when faced with the inevitable whingeing from banks saying that they are considering leaving the United Kingdom, to bear it in mind that the UK retail business is unbelievably profitable, and to say that banks that want to leave should exit their business or be invited to do so?
I agree with my hon. Friend that London and the United Kingdom constitute a very attractive place in which to locate a universal bank. We have what I think will be the best regulatory regime in the world, with the best regulators. We also have a good rule of law. This is a good place in which to live, and it happens to have a good time zone as well. All those factors make it a very good place from which to run financial services.
The Chancellor may recall that the coalition agreement called for net lending targets for the nationalised banks. Why did the Project Merlin deal involve much weaker targets for gross lending?
May I commend the Chancellor on setting up the commission and on making such an unambiguous statement today? Will he confirm that he has the full backing of the Government, and that No. 10 will not be unleashing the “forces of hell” on No. 11?
The commission appears to have diluted its interim proposal to place a duty on the regulator to promote competition, but the Treasury Committee stated in its report on this subject that that was a crucial recommendation. The Chancellor has mentioned the importance of competition on numerous occasions today. Will he look again at this recommendation and ensure that we maximise the opportunities to improve competition in the market for the benefit of consumers and taxpayers?
I do not think the hon. Gentleman is being entirely fair. A specific part of the report deals with the remit of the new Financial Conduct Authority, and it says that—although we have changed our proposal in the light of the interim report, as I announced at the Mansion House—we could go further and make the requirement to promote competition an overriding duty on the authority. We should look at that over the next couple of months. I would welcome the input of the Select Committee, and we could respond later this year.