Contribution
The hon. Gentleman raises a number of points. We are getting deep into the debate, but the very quick answer to his question is no, I cannot rule out getting rid of the ringfencing regime. It has already been made public that the policy of a future Conservative Government will be to do so. That is the debate we will be having in Committee, and I am sure the hon. Gentleman will be delighted to join us in Committee, where we can get into the debate in depth. It is great to see so many Members across the House putting themselves forward with their enthusiasm to get involved in the debate—my right hon. Friend the Member for Beverley and Holderness (Graham Stuart) will have found a friend.
My second point—of a number of points, although I am conscious that I am taking up a lot of time—is that we would like the Government to go further on bank capital requirements. UK banks, building societies and PRA-designated investment firms are required to maintain minimum levels of capital in proportion to their risk-weighted assets. That is to help ensure that firms remain resilient and to reduce the impact of failure. Clearly, no responsible Government would abolish capital requirements, but we need to question whether banks should be required to hold capital beyond what is genuinely needed for resilience. This is an important point.
We should acknowledge that the Bank of England has eased bank capital requirements in recent years, specifically at the end of 2025, when it revised down the benchmark for tier 1 capital from 14% of risk-weighted assets to 13%. However, it is worth remembering that the Parliamentary Commission on Banking Standards recommended 11%, so that benchmark is higher than we originally asked for. We believe that the current level is still too high. The most recent stress test carried out by the Bank of England found that
“all banks remained above their set capital minima at the low-point of the scenario. No individual bank was required to strengthen its capital position as a result of the test.”
From memory, it was a one-in-250-year event that the banks were being stress tested on. The system has to allow an element of risk—when I was on the banking commission, we made it very clear how important that was. We made it clear that it was okay for a bank to fail, but it was not okay for banks to bring down the entire system.
The important point is that there has to be an element of risk in the system, but that is not what has been delivered, meaning that the potential lending and financing capacity of our banking sector is significantly reduced—to the tune of about £450 billion each year, we reckon. That is an awful lot of money that is not going into the economy. UK Finance has advised me that each percentage point of the tier 1 capital stack potentially represents about £600 billion in liquidity, so 2% above the recommendation of the Parliamentary Commission on Banking Standards represents about £1.2 trillion. Leverage that up under the banks and we are potentially talking about £12 trillion that is not in circulation because of over-interpretation of the rules. But we do not want to get ahead of ourselves; we reckon that £450 billion is not in circulation because of that over-enthusiasm on the tier 1 stack. That is money that could be used more productively. It could be invested in our communities or in businesses, but it remains stuck on banks’ balance sheets.
While the Bill does not contain any specific measures dealing with bank capital requirements, we believe that it is a perfect opportunity to make the necessary changes—specifically, to reform the parameters within which the Financial Policy Committee and the PRA operate. As such, we will be putting forward changes in areas where we believe the Government may be encouraged to take some advice from the Opposition.
As we have heard, the Financial Ombudsman Service plays an incredibly important role in the UK financial services sector. It provides redress for consumers and small and medium-sized enterprises against FCA and PRA-regulated firms outside of the court system, and crucially, it provides a service that is low-cost and accessible for consumers. However, over the years, the FOS has gone beyond being a dispute resolution mechanism and has become a quasi-regulator. This is creating significant costs for firms, with research from TheCityUK suggesting that the cost of regulatory compliance across the financial sector now exceeds £34 billion. Importantly, firms are also being retrospectively penalised, despite having followed the law on the day of an occurrence that was subsequently deemed to be problematic.
The Bill makes some positive changes in this area, which we welcome. It narrows the fair and reasonable test so that there is no longer a presumption of guilt, and creates a 10-year complaint deadline. Those positive changes will help prevent the FOS from acting beyond its remit. However, again, we do not believe that they go far enough, and there are a number of issues that we will raise during our debates in Committee.
Madam Deputy Speaker, you will be pleased that this brings me to my final point.