My Lords, I begin by paying tribute to my noble friend Lord Lawson. As his researcher in my spare time before I entered Parliament, then his PPS for four years, then his Economic Secretary to the Treasury for two more, I learned my politics at his feet. I also learned to admire his immense intellect, his sound judgment, and—what may be less well known to others—his incredible, uncanny insight into human psychology, enabling him to forecast in advance the reactions of individuals and the public to events long before they occurred. When I saw him in the summer, his intellect, judgment and insight were undimmed. They will be sorely missed in this House.
I want to make five simple points. First, the four major global financial centres, London, New York, Hong Kong and Singapore, are all based on common law, as are the three newest players, Dubai, Abu Dhabi and Astana. By contrast, the largest European financial centre, based on civil law code, is Frankfurt, which clocks in at number 18 as the most significant globally. That is not a coincidence; it is because common law is uniquely suited to financial markets. In recent decades, layers of civil law code have been added to Britain’s financial system, so the objective of this Bill, to return rule-making to a more common-law-based approach, is very welcome.
Secondly, it is not clear whether the Bill will achieve that objective. Historically, the common-law approach involves laws and regulations made by Parliament and explicated by the courts by the accumulation of precedents. The Bill at present will effectively hand over rule-making to independent regulators, with minimal accountability to Parliament or involvement of the courts.
Thirdly, the economic analysis of regulation is a comparatively new discipline, but its seminal conclusion is clear: we cannot rely on the beneficence of regulators. Left to their own devices—and I stress this—regulators regulate in the interests of regulators, without accountability. That is why, in practice, they mind their own backs by taking a bureaucratic, box-ticking approach to every decision, rather than focusing their resources on areas of genuine concern. As a result, bona fide businesses face pointless delays to obtain the least contentious decisions; regulators refuse to offer advice on how they will apply specific rules in specific cases, leaving businesses to face uncertainty and risk; and regulators refuse to publish reasons for their decisions, with the result that there is no coherent body of case law for firms to follow. Finally, regulators tend remorselessly to extend their remit, increasing their own importance.
I understand that amendments are likely to be proposed to make regulators more accountable to Parliament, or at least to a powerful Joint Committee of both Houses. Having chaired the Joint Committee scrutinising legislation following the great financial crisis, I can vouch for how much value the Members of this House give to such committees, as well as those of the other House, to which I then belonged. It is also important that there are amendments to require regulators to apply common law disciplines and to enable tribunals to ensure that a body of publicly available case law develops to give practitioners greater legal certainty. I am predisposed to support such amendments, as I hope will the Government.
Fourthly, I understand that the regulators have been arguing that their independence is sacrosanct. To quote Mandy Rice-Davies, “They would say that, wouldn’t they?” Of course politicians should not meddle in how regulators apply rules to specific practitioners, but the Bank of England was given independence to set interest rates for a very specific reason: because the timing of interest rate changes is electorally sensitive. There is no equivalent reason to allow the financial regulators to be immune to influence and oversight from Parliament or the courts.
Fifthly, finally and rather differently, there is no reason to extend the regulators’ competence to include climate change. The sensible path to net zero, which we have adopted in this country, is to reduce demand for fossil fuels, not to reduce their supply. If businesses overinvest in producing fossil fuels ahead of declining demand, they will lose money. That is their problem, not the regulators’. If the UK unilaterally bans investment in fossil fuels, which would be a bizarre thing to do given that we do not ban their import, other people will supply them, both here and abroad. If the world collectively restricts the supply of fossil fuels faster than we phase out demand, there will be shortages, prices will shoot up and fossil-fuel producers will make enormous profits; we will have done to ourselves what Putin has just done to the world. Giving regulators a climate objective would be either pointless or disastrous. In all other respects, I support the Bill.